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When should you start? How much should you give? How to make sure pocket money teaches your kids financial skills
Article Source: https://theconversation.com/when-should-you-start-how-much-should-you-give-how-to-make-sure-pocket-money-teaches-your-kids-financial-skills-220279
Giving kids pocket money can be a really challenging decision for families. It raises questions about when to start it, how much to give and whether it should be tied to chores.
As a finance researcher and parent, it’s also important to view pocket money as an educational opportunity. You can use it to teach children how to make informed financial decisions, set meaningful goals and develop responsible spending habits.
Here’s how you can approach it.
When should you start?
There is no one “right age” but you could reasonably consider pocket money when children start school and begin learning to add and subtract. This means your child will be old enough to start grasping concepts like saving and spending.
As your child grows, you can move on from basic arithmetic and tailor your discussions to what your child is learning in maths.
How much should it be?
How much you give will depend on your family situation and finances.
A useful starting point is working out what the pocket money will be used for. Is it simply to give your child a bit of autonomy over spending (for example, buying an ice block from the canteen)?. Is it to try to save for something special? Or is it to be used for all entertainment, clothes and on-trend desires like fancy water bottles?
A long-held rule of thumb is giving $1 per week relating to your child’s age (so $5 for a five-year-old). But of course amounts tying pocket money to a child’s raw age may not work with today’s economic conditions. Three years ago, $10 bought a lot more than it does today.
Of course you will also need to consider pocket money within the context of your wider household budget. Down the track, there’s nothing wrong with talking to your child about adjusting their pocket money if your household budget needs changing.
Cash or direct debit?
When your child is little, giving them pocket money in cash is a good way to help them start to understand money. It’s something they can see and hold in their hands.
As they get older and the amounts get larger, direct debits will become more convenient and can teach them about handling their money online.
Since getting your hands on cash is difficult these days, when they’re young you can also give your kids pocket money electronically but give them monopoly money or a similar representative of what they have earned. You can then progress to a spreadsheet as they get older.
