Pocket Money For Financial Literacy

Thu May 4th 2017

Pocket money seems to be a contentious issue – do you make your kids work for it or should they get it as a member of the family? There are arguments for both sides, and also good reasons why neither is fully adequate as training for real-world financial literacy.

Pocket money – setting kids up for the real world

Pocket money seems to be a contentious issue – do you make your kids work for it or should they get it as a member of the family? There are arguments for both sides, and also good reasons why neither is fully adequate as training for real-world financial literacy.

Free money for kids

Some would argue that giving your kids pocket money is the same as feeding, clothing and housing them. You wouldn't stop feeding your children because they hadn't done their chores, and pocket money is the same category for a lot of families. Having a small portion of the family's wealth can make a child feel more connected and valued, but it shouldn't stop there.

Just like teaching your children to cook, clean up after themselves and take on responsibilities at home according to their age, you need to begin life lessons about money early – where it comes from, what it can buy and how to manage it. With no understanding of money or why they are getting it, kids could grow up without the tools to manage their finances.

Pocket money for jobs

Plenty of people feel that pocket money should be earned – children are given jobs to do around the house, and they get paid for them. When they don't do their jobs, they miss out on pocket money, and maybe see it go to a sister or brother. The logic in this is clear – work and you get paid. No work, no money – a pretty good life lesson.

The trouble is, if a kid doesn't feel like doing chores, and doesn't care about getting money (some don't), where do you go from there? As they get older they might bring up the question of an hourly rate – or the minimum wage. And even if money for jobs works well in your family, you still need to be teaching your kids what to do with it when they get it.

Take the best of both

You can combine the advantages of both forms of pocket money – each child gets some with no strings attached, and for certain jobs, more is handed out. Every child should be assigned responsibilities as part of the family without the threat of withholding pocket money. Making their beds, setting the table – whatever chore is appropriate for their age and ability.

Earning extra money for jobs should be seen as a privilege and an opportunity for kids to boost their income. That way, they feel like an important part of the family, and they also begin to associate financial gain with work.

Start your kids off early

However your children get pocket money – by doing jobs, as a family member, or both – they need to know how to manage it. Financial literacy isn't often taught in schools, and anyway, kids should begin learning about money well before that. So it's up to you as a parent to teach those life skills.

Very young children like having a small purse or piggy bank with shiny coins in it. If they want a toy, that's your opportunity to begin making the connection between money and what it can buy. Meanwhile, you can help them understand that their coins are valuable and need to be kept in a safe place.

Online banking, savings and interest

Older children can learn about banking. Take the time to show them how online banking works, and what interest rate their savings will earn. Look for an app that makes their introduction interesting and fun.

Encourage them to spend a part of their pocket money and save the rest. You can suggest a medium-term savings goal for them to aim at – something they've wanted for a while but can't afford. Do some arithmetic with them – how long will it take to save enough, if this much goes in every week?

It's also a great time to instil a sense of community. Help your kids look outside their family by encouraging small donations to a charity that they choose. Your children will get a lot of satisfaction from being generous to people in need.

Timing and budgeting – lessons for life

Most parents start out handing over pocket money once a week. This works well for younger children – a week is a long time to wait for the next instalment! But as they get older, the next important lesson they need to learn is how to budget. That's when it's a good idea to stretch out the pocket money payday to once a fortnight.

That way, older children learn how to manage their money. It might take a month or two of binge spending and being broke for a fortnight, and you may need to resist the impulse to go back to a weekly regime. Answer any questions they have, and let them get on with it. Remember 'pain is a great teacher' and trust that your child will soon work out how to budget.

For older teens, you can go to a monthly allowance, but be sure and give them plenty of warning. They may have regular outgoings to manage – like gym memberships and subscriptions.

Tips for managing pocket money

Things to try

●Organise your household with a job list so everyone knows what their responsibilities are as members of the family.

●Be clear about what jobs you pay your kids to do.

●Consider setting a rule about what proportion of pocket money must go into a savings account.

●Help your child work out a goal to save towards.

●Encourage small, regular donations to your child's choice of charity.

●Lead by example – budget, save, donate.

Things to avoid

●Avoid punish your children by cutting off allowance. Bad behaviour is not negotiable – it's unacceptable.

●Try not to tell your children to do one thing, and do the opposite yourself.

Do your children a lifelong service

Managing money today is a complex and serious responsibility. Give your children the early experience and knowledge they need to manage their finances – and their lives.

Get in touch with the experts at Cave Financial. Call them on 09 985 3033 or email cavefinancial@qbg.co.nz

Need our help?

We're here to answer your questions.

Get in touch with us today
  • Michael is an expert in his field and really goes the extra mile to ensure a professional, thorough and enjoyable experience when looking for Insurance cover or trusted Financial advice. Highly recommended.

    Johnny Robinson

  • Michael has a wealth of information to share with regards to financial planning...he has always provided valuable information to both my clients and me without being a pushy sales person!

    Vijay Nyayapati

  • I am thrilled with the advice and service Michael provided me for financial planning and for personal insurance. Trustworthy and a very nice chap! I highly recommend his services.

    Andrew Malmo

  • Michael has consistently provided excellent service, financial advice, support and follow-up on insurance services for my business. I would highly recommend Michael to anyone needing clear and honest financial advice.

    James McGoram

Latest articles