The benefits of pocket money

Giving kids pocket money is a personal choice, but there are a number of benefits in terms of teaching children essential life skills. Let’s take a look!

Earning even a small amount of money can benefit kids, even from an early age, as it teaches them the value of money and how best to manage it. Having a small amount of money comes with inbuilt choices in relation to whether they can spend it right away, or learn the value of saving.

Money management

If your child decides to save their pocket money to buy a specific item or experience, the act of saving teaches them to have goals, delay gratification and earn the things they desire.

Learning about financial consequences

We all make mistakes with money and children are no exception. Part of learning financial maturity happens when we lose money or spend it poorly and feel the pain of it. Allowing your little ones to mess up with small amounts of money like this and experience the consequences is a great life lesson that shapes their understanding around money.

A sense of independence

Having a little bit of their own money is a wonderful way to foster a sense of independence and responsibility in your child. It affords them the opportunity to make choices for themselves sometimes and get to know what they want and like.

WHEN TO BEGIN

Once again, this is up to your judgement. Your child could be at the right stage for pocket money if they can grasp that:

• Money is needed to purchase things.
• Spending everything now still means you must wait until the next payment.
• It’s good to save some money for later rather than blow it all, simply because they have it

THE “RIGHT” AMOUNT?

Tailor the amount of pocket money you give your child to what you have in your household budget to spare, what you personally feel is reasonable and also what level of financial freedom or spending power you are comfortable giving away to your child.

Base your choice on your child’s age, emotional maturity, what chores you they are required to do in order to earn it and your spending expectations (what the money has to cover). The amount doesn’t matter in terms of the benefits and lessons that pocket money allows children to learn – it’s simply about having some.

HOW TO SPEND IT

There are no rules for this, except that you should always be aware of what your child is buying. Ideas of how they could spend their money include: particular games or toys, decorations & posters for their room, cinema tickets, presents for family or occasions and lunch or dinner out as a treat.

WHAT CHORES TO CHOOSE

There are two options when it comes to chores. One approach is to expect everyone to participate in the household chores simply because they are members of the family and not because they’re getting money for it. This avoids any bargaining about how much money each job is worth. Another approach is to pay children to do household tasks to avoid simply giving them the money. It also has the benefit of motivating kids to do their chores on time!

If you pick this way of doing things, it can be helpful to explain exactly which tasks should be done and when, along with the amount of money they will receive for doing them. This makes sure the tasks have to be carried out regularly – say weekly or each Sunday – and trains your little one into the habit of earning their money. There is no better way to do things, only the way that feels right for you and your family.

MONEY LESSONS

There are many lessons little ones must learn in relation to money. Here are some ways your example and some pocket money can help teach them these important concepts.

Be a good role model

Kids are mimics! They take in everything you do and copy it. This means they can form their relationship with money based on watching yours. This gives you the ability to show them aspects of money management simply by being a positive role model. Let them see you shopping around for better value or set spending budgets.

Learning value and limits

Pocket money can show kids the value of money. Essentially this means the cost of items in comparison to each other. It will also school them to understand and accept that once money has been spent, it’s gone. This ties into grasping opportunity cost, which is the knowledge that if you use the money to buy something, you are choosing to give up the chance of spending that money on something else.

Earning and saving

Doing work for financial reward is a healthy model of work that helps kids to understand the effort involved in earning money. It also demonstrates to little ones that there is no such thing as simply ‘getting’ money without work. Putting money aside to save for a special toy or trip shows kids the merit of saving towards a goal.

FINAL TIPS

Below are some last tips to bear in mind when entering the world of pocket money and kids:

• Discuss percentages that should be saved or can be spent in the present.
• To help kids save, have a savings jar or box so little ones can watch their money ‘grow’.
• Don’t allow yourself to be convinced to pay more than you want to, no matter how much your child tells you their friends get.
• Agree on a list of things that your child has permission to spend their money on. Make sure they know what they are definitely not allowed to spend the money on.
• Agree on a regular payday. Perhaps it’s on Saturdays, maybe it’s on the first Monday of the month. Just keep it consistent.

Pocket money can help children learn a lot about managing their money and having household responsibilities. Above all, go about doing this in a way that makes sense for you and your family.