Deciding on giving pocket money is a significant consideration for many families, encompassing the timing of its introduction, the amount to be given, and whether it should be associated with household chores. As a finance researcher and parent, I view pocket money not just as a monetary allowance but as a vital educational tool. It’s an opportunity to teach children about financial literacy, helping them to understand the value of money, budgeting, saving, and making wise financial decisions.
Initiating Pocket Money: Timing Matters
While there’s no universally correct age to start giving pocket money, a practical milestone is when children begin school and learn basic arithmetic. This period is ideal as it aligns with their developing ability to comprehend concepts like saving and spending. As they grow older, the financial discussions can become more complex, reflecting their advancing mathematical skills and understanding.
Determining the Amount
The amount of pocket money is influenced by various factors, including the family’s financial situation and the intended use of the money. It could range from covering small personal expenditures, like treats from the canteen, to saving up for more significant purchases or even encompassing all leisure activities and personal desires. Traditionally, a rule of thumb has been to give $1 per week for each year of the child’s age, though current economic conditions might necessitate adjustments. It’s crucial to keep pocket money aligned with the household’s broader financial planning, being open to revising the amount as circumstances change.
The Mode of Payment: Cash or Electronic?
For younger children, physical cash can be more educational, allowing them to tangibly see and manage their money. However, as children grow and financial transactions become more substantial, the convenience and lessons in digital financial management offered by direct debits become apparent. Starting with tangible representations like monopoly money before transitioning to electronic methods or spreadsheets can help bridge the understanding of digital finances.
Linking Pocket Money to Chores
While some parents prefer to tie pocket money to chores to instill a work ethic, this approach requires clear communication about expectations and consistent follow-through. However, I advocate for encouraging children to contribute to household chores as a part of family life, separate from financial incentives, emphasizing the value of cooperation and responsibility over monetary reward.
Financial Education and Goal Setting
Pocket money presents an invaluable chance to embed financial education into daily life. Starting with simple decision-making scenarios, parents can gradually introduce more complex financial concepts as their child’s understanding deepens. Encouraging savings towards achievable goals helps children learn the importance of delayed gratification and financial planning. For example, creating an emergency fund for unforeseen expenses can teach them about the security and foresight required in managing money.
Scott Pape, the author of “The Barefoot Investor,” suggests using physical “buckets” to categorize savings: for immediate pleasures, long-term goals, charitable acts, and investments. This tangible system can help children understand and visualize different financial priorities.
Smart Shopping and Value Assessment
Having their own money transforms shopping trips into meaningful learning experiences. These outings can lead to discussions about price comparisons, the longevity of satisfaction from purchases, and distinguishing between needs and wants. Encouraging children to reflect on their spending choices, whether on tangible items or experiences, fosters a deeper understanding of personal values and financial decision-making.
While there’s no one-size-fits-all approach to giving pocket money, viewing it as a tool for financial education can offer children invaluable lessons that extend far beyond their childhood. Integrating discussions about money, savings, and responsible spending into everyday activities lays the foundation for a financially savvy future, making pocket money a wise investment in a child’s overall education.