Pocket money: when and how much?
Does it make sense to give pocket money to children? Is it good for them, and what are their benefits of learning through spending and saving?
Well, first things first.
Let’s be honest — we can’t imagine today’s human society without cash, so all in all, every child will have to learn about money sooner or later, and it’s up to every parent to decide what age they think fit as a starting point.
Opinions as to whether one gives pocket money to kids vary. Those, who are against this idea, substantiate their belief with these arguments:
- kids already have everything they need for everyday life;
- a kid will spend cash on trifles;
- he or she won’t appreciate the value of money;
- and will become greedy.
Such risks do exist if parents:
- don’t follow any reasonable system in the way they provide cash to their kids;
- don’t offer any pieces of advice about rational spending of funds;
- scold their children in case of any mistakes and unwise spending instead of discussing and helping to learn lessons for future.
However, most psychologists and advocates of financial literacy rely on the importance of establishing some line of financial interaction between children and parents. The arguments in support of this position are that kids will:
- learn to set and achieve financial goals;
- appreciate the advantages of financial independence;
- evolve into an adult, who will spend smartly;
- will ultimately learn to handle a variety of financial instruments;
- not have hang-ups as compared to teenagers that have the cash to cover everyday expenses.
On the contrary, if you prefer not to give cash to kids, you can sooner or later face the issues arising out of such unwillingness:
- The kids will face difficulties when shopping since their previous experience won’t offer any prompts.
- They won’t master budget planning and cost management.
- When kids have no own cash, they are under pressure to the temptation to take what doesn’t belong to them, even if it is just a pack of chips.
- A kid will see himself as a white crow among coevals.
An interesting point to mention here is that psychologists have already classified parenting style as related to “cash management”.
The controlling type requires strict accountability about every spending item. If a kid fails to submit the balance sheet, the provided amount will be reduced to the minimum. Here, a parent may prevent any unwanted spending or consult their kids on rational spending. However, at the same time, this approach doesn’t develop independent financial thinking since a parent still remains the only decision-maker.
The behaviorist type allocates remuneration after a kid cleans the room or gets an excellent mark. Here cash serves as an incentive of academic excellence and industrious help about the house. The side-effect of such an approach is that a kid can totally refuse to study or do the chores for free.
The planning type — these are the parents that give the agreed amount once a month or week. This develops independent financial thinking, the ability to control and prioritize spending.
How will a child benefit from having their own cash?
Pocket money will help kids learn important financial literacy lessons, from the basic guides of how not to lose money on trash up to family budget planning or investments.
This way, kids will grasp the idea that:
- cash is an occult substance that can just vanish in the air for no reason,
- big purchases require small but regular steps of savings,
- that, once borrowed, the cash must not only be paid back but also observe the deadline when repayment is due,
- that the most straightforward way to possessing your own money is a job you do (especially for adults),
- planing your spending beforehand and prioritizing items is required not to overspend and reserve some cash for emergencies.
When and How Much?
There are no one-size-fits-all recommendations about the age to acquaint your son or daughter with cash. Still, the general criteria, if your kids are ready to handle the issue, is that:
- Kids understand everyone needs money to purchase goods from stores.
- They clearly see the importance of savings instead of spending it all right away.
- They accept that if the entire sum is gone today, they have to wait until the next date when they usually receive it.
At the pre-school age, kids can grasp the primary principles of cash management:
- cash is used to buy staff and food for a person’s everyday needs,
- it’s essential to learn how to save money, or it disappears before the date of next payment you are supposed to get it,
- cash can be physically lost or stolen,
- funds are gone after you’ve exchanged them for any necessary goods.
Parents could use cash instead of paying with debit/credit cards in a supermarket to clearly visualize the message they want to deliver.
Parents are supposed to bring home to their youngest ones what they are permitted and forbidden to buy. It’s worth recording the rules, making a list of the allowed goods or select a set of matching pictures and putting these instructions in the place where they are clearly visible. This way, they will be easier to remember.
Tell teenagers about lending. It’s important to bring home to them that borrowed money must be repaid and that you borrow someone’s other funds only for a while but need to repay them for good. Tell them about the interest rates accrued on any credit nowadays. You can even practice it if your kids ask you for additional cash in case he/she has run out of money or wants to make a larger purchase. That will teach them the basics of lending, with all disadvantages that accompany quick cash accessible through credit cards.
The exact sum to allocate to your kid is entirely your choice as a parent. Take into account your family’s spending needs, financial position, and what you believe will be reasonable. It is logical to consistently raise the sum as your kid gets older because both their spending demands and the ability to deal with money will grow. Of course, younger children lose cash more often, and the lesson is less expensive if the amount lost is not great. Besides, get ready for mistakes younger kids can make while learning: chances are they will occasionally overspend or buy the things they don’t need. So this is another reason, while smaller amounts match the situation better.
Consider what your kid needs cash for every day: a bus to school, having lunch during the daytime, small pleasures. Another portion of cash can be saved for a bigger purchase or charity if your kid shares a certain cause and wants to contribute. As an option, consider the amount your child’s friends get as a guiding light. Still, if you feel this amount is too large, stand pat and follow your sense of proportion.
It’s a reasonable approach to give cash in denominations that make it easier for a kid to save a part of the provided amount. If it’s five dollars, then give 5 one dollar banknotes: this way, it is much easier for a kid to save at least one banknote. Seemingly little as it is, it would be twenty percent savings! Another recommendation here is to store cash in different jars or transparent plastic containers: the first jar for everyday needs, the second — for long-term saving goals, and the third one (optional) for charity.
However, this is a parent’s right to control your child’s spending and prevent purchases you don’t approve, such as junk food, computer games or action films you wouldn’t allow to watch.
Cash for Chores: Pros and Cons
Pocket money for chores is a debatable issue, but here, again, every parent should do what they think appropriate.
One point of view is that chores are what both adults and kids do because they are family members and not because it is a kind of employment.
The opposite viewpoint is that paying for chores motivates doing it better, more regularly and teaches kids, especially teenagers, that employment is actually the only honest and decent way to get your own cash.
Besides, there is a rarely met approach when you pay kids for excellent school grades, with the underlying idea that this creates a strong connection between academic excellence, professional success, and prosperity.
If a kid gets cash for chores, it’s reasonable to pay it for regular activities, like daily laundering or cleaning their room once a week. This also helps to form a habit of having a regular paid job.
Tips and Tricks: Common Pocket Money Rules
Determine the sum you provide, judging by what you can afford in your financial circumstances. Opinions of other people are only advice you are free to follow or not.
Pay cash on the set date. This is how you teach your son or daughter to spread the expenses throughout the period and drill the basics of budgeting. This implies the skill to plan certain expenses, like mobile phone services.
Ask your kid what frequency is best for him or her — this will let your child feel his or her opinion matters and you are responsive to your kid’s ideas. Besides, if the provided case covers entertainment, discuss with the kid what kinds of pleasures are allowed.
Older kids can learn more about cash management. The aspects and topics covered may include:
- They will gradually understand the relative price of things, accepting that some goods are more expensive than others.
- Kids will see that the only decent way to have cash is to earn it. Another side of this knowledge is that work can be exciting and exhausting simultaneously.
- Set short- and long-term objectives to provide some details about the investment basics.
- When wishing to save money for larger purchases, they will have to learn budget planning, decide how much cash they are willing and can afford to save every month, what expenses can be reduced to improve the savings pace. This is also a valid reason to look for special offers and discounts.
- If, at some age, you begin paying for doing chores, that will teach them to regularly work for money, to be accountable for the quality of work, to agree upon the scope of work or remuneration due to it. The said of paid tasks will be changed over time: easier ones will have to be done for free, but your kids will have an opportunity to earn through engaging in a wider set of chores.
- At the teenage age, the experiment of charging interest on minor credits you grant to your kids will quickly teach them that borrowing it’s really expensive.
- On some occasions, you can withdraw cash as a punishment for a variety of violations, but this must be agreed upon from the very beginning.
- Avoid giving pocket money in advance or that will ruin the idea of teaching budget planning.
Key Takeaways
Any financial relations between parents and children are entirely a family matter where a parent decides what is right and what is wrong.
But the most important thing to remember here is that all of us live in the society where money is an everyday attribute of both work and beyond and, to some extent, is a benchmark of success or a source of problems. The reasonable attitude to money and proper financial culture is based on the well-developed skills of budget planning, spending / saving ratio, and the understanding that work is the most straightforward way of earning for a living. All of this will help your children avoid multiple financial issues they could face as adults. Like any other skills, these will also be maximized when developed since the early years.
So follow your common sense to choose a starting point and do your children a favor that is bound to improve their life in the long run.
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