What Are the Benefits of Pocket Money? And How Much Should You Give?
Pocket money has a wealth of benefits for both the child and the family. In fact, kids who get pocket money are more likely to develop strong financial planning skills, and are less likely to get in debt as adults. Read on to find out more about the benefits of pocket money and how much you should give.
Pocket Money – The Benefits
The above factor alone should be enough to sway you in to giving your children pocket money. However, there are a wide range of benefits to giving pocket money.
• Financial Planning: Since 2014, financial literacy features on the UK National Curriculum. Pocket money reinforces this – teaching children the benefits of saving, careful spending, and money management.
• Lower Risk of Adult Debt: According to the ING survey of 12,000 parents across Europe, giving children pocket money reduces the risk of them getting in to debt as adults. Pocket money is the building block for adult self-sufficiency.
• Make a Future Saver: Learning young, through pocket money, encourages a lifetime of saving where delayed gratification is appreciated.
• The Value of Money: It’s a tricky concept for kids to grasp, but one they need to understand. To them they literally see cash come out of a hole-in-the-wall. Pocket money, especially if earned through chores, enables them to learn what money is actually worth, and its value. They learn to prioritise wants and needs.
• A Sense of Purpose and Achievement: By gradually saving some of their pocket money towards a goal, children develop a sense of purpose and pride in their achievement. They also learn to value possessions more, when they have had a hand in paying for them.
• It Limits the Pester-Power: Marketers know all about it, and any parent standing at the checkout of a supermarket does too: Kids have pester-power. However, when it’s their money they are spending, they suddenly become more savvy spenders. You’re not stuck buying the fiftieth packet of trading cards because they just have to have ultra-rare Number 24.
• It Teaches the Value of Hard Work: When children can earn pocket money in exchange for jobs they realise the intrinsic value of hard-work.
Are There Disadvantages of Pocket Money?
In the main, pocket money is beneficial. There are a few disadvantages, but with careful management, these can in fact become learning opportunities in themselves.
• The Frivolous Spender: By handing over control of some pocket money to your child you may discover they repeatedly ‘blow’ the money on frivolous spends. Try to stand back a little and allow this to happen. It’s learning through mistakes. By spending frivolously, they will learn the hard lesson that they never achieve their saving goal, and run out of money fast. If you’ve still got a frivolous spender on your hands, it might be time to start laying down some pocket money rules such as save half, spend half.
• They Compare Themselves to Friends: There’s always going to be peer pressure, and it can be hard if you are unable to give your young one the same as their friends. However, don’t panic. Firstly, chances are there is some playground exaggeration going on. Secondly, remember that having a restricted budget is a good thing for learning financial planning.
• Money Becomes a Sign of Love: Some children, and parents, can get in a situation whereby the giving of cash becomes equated with love. For this reason, it’s sensible to set a weekly or monthly amount which doesn’t vary greatly. This doesn’t mean that they shouldn’t be expected to contribute if they have wilfully damaged something, but it separates money from affection.
How Much Pocket Money?
How much pocket money you give, and what you expect it to be spent on, will vary according to age (as well as from family to family). As a nation, we tend to give generously to our younger children, and less generously to older kids and teens, proportionally compared to other European countries.
The average amounts of pocket money UK kids get, by age, per week, are:
Under 5’s: £2
5-10 years: £5
10-15 years: £5
15+ years: £9.50
The amount you choose to give should take in to consideration what you expect your child to pay for. A young child who will only be expected to pay for sweets, playground fads, and small toys, won’t need as much as a teen who is expected to cover their phone bill and trips with friends.
How to Give?
Once parents have decided how much pocket money to give, they then need to consider how they will pay it. Will you give it regardless on a regular basis, or do chores need to be performed first? Many families find it good to strike a balance, with a set amount given regularly, and the opportunity to earn more through chores.
Then you need to decide whether you’re handing over hard cash, or providing pocket money in a different way. The benefits of cash are that the child learns the actual value of notes and coins, and has a tangible way of spending money. However, if the child is saving, this isn’t necessarily the most appropriate vessel. Similarly, piggy banks are vulnerable to parents running an IOU for car park coins, ice cream van arrivals, and other cheeky thefts!
It is also difficult to set up appropriate bank accounts for children for pocket money which they need access to. Savings accounts are, of course, an option, and can teach reading bank statements, but they don’t provide the pot in the way that many need for pocket money.
Bridging this gap are various technological tools to help parents. For example, you may choose to use a pocket money tracker app such as Rooster, which also allows children to track their spending and savings goals. Or you may choose to set up accounts such as GoHenry which provide your child with an actual debit card for spending.
No matter how you pay it, or the amount, don’t forget to use the act of giving to teach children how to make lists of priorities and savings goals.
Big Spenders, Little Spenders
Pocket money is a vital part of childhood, and can be a valuable tool for teaching money management and independence. By starting young, your child has the chance to make the mistakes when you’re looking at pennies, rather than pounds.