How can children be helped to understand money? Two parents describe their different approaches to teaching financial responsibility

One day your children's only money worries involve swallowing a euro or getting a cent stuck up their nose. The next they've got €200 in First Communion gifts to invest. Money can become an issue for kids at an early stage and many parents are confused about how to approach it. For example, one reader damns the day she ever started paying her daughter to do household chores, as the girl now won't hang up her coat unless there's money to be had for it.

Other parents wish they had made pocket money conditional on some deliverable aim, as their children have no idea that work and money are related. Children tend to have no interest in saving because they have no conception of the future.

Author and journalist David Owen had a unique approach to financial education: he set up his own bank.

"Parents who decide that the time has come to teach their children about money usually begin by opening savings accounts," wrote Owen in Atlantic Monthly. "The kids are intrigued at first by the notion that a bank will pay them for doing nothing, but their enthusiasm disappears when they realise that the interest rate is minuscule and, furthermore, their parents don't intend to give them access to their principal. To a kid, a savings account is just a black hole that swallows birthday cheques."

Owen then went on to describe how he avoided this problem:

"I started my own bank. It's called the First National Bank of Dave. I set up an account for each child, using the same computer program I use to keep track of my chequebook. Because I wanted my kids' deposits to grow at a pace that would hold their attention, I offered an attractive interest rate - 5 per cent a month. Compounded, that works out at an annual rate of more than 70 per cent. Allowances are deposited automatically on the first day of each month. The kids can make other deposits, or withdrawals, whenever they like. The Bank of Dave, which has been in operation for four years, instantly turned both my children into ardent savers. My son still comes to me with change he has found on the floor of the car, saying: 'And credit this today.' "

Owen's method breeds good savers, but it doesn't link earnings to work.

Cork mother-of-six Geraldine Patten and her husband have established a rigorous programme of financial rectitude in their home. Unlike Owen's system, it links household chores, behaviour and pocket money. It's a complex programme on the face of it, but it seems to work.

"Each of our children, from the age of six, has been given pocket money according to his or her years," Patten says. "The 13-year-old gets €13, the 12-year-old gets €12, and so on. Every Monday they have their money in principle, then they spend the rest of the week trying not to lose any, so that by Saturday their sum is intact."

There are two ways that Patten's children can lose their money. Fifty per cent can be lost through bad behaviour - arguing, moodiness, lack of respect. The other 50 per cent is contingent on the completion of a daily task.

"They all know what they have to do each day to ensure they get all their money on Saturday," says Patten. "The eldest girl is responsible for minding her baby brothers while the dinner is prepared. The second eldest must get them ready for bed each night. The third eldest sets and clears the table each evening. The next one clears up the toys around the house. They are all clear about what they have to do, so there's no confusion."

The 50 per cent that hangs on good behaviour is more difficult to quantify, but Patten maintains that good communication keeps the children up to speed.

"If they lose money for attitude we are careful to tell them exactly what behaviour caused the reduction and what they can do to correct it," she says. "We are very clear about behavioural boundaries in the house. We agreed a set of rules with the children and typed it out."

Patten's system has been running for two years and appears to be a success. Regular family meetings are held to ensure that everyone is happy with the arrangements.

"It sounds very formal but it gives everyone a chance to air their grievances, so there's no need for argument or resentment," she says.

She's also keen to point out that the system is supported by plenty of praise and encouragement, which the children always respond to better than any handout.

"Children love to know where they stand," she says. "They try to push out the boundaries, but that's natural. They get to know how to work the system to their advantage by using positive behaviour. That gives them a sense of security and achievement, which kids thrive on."