A child or young person having money of their own is an important rite of passage and pocket money can form the basis of excellent financial education in areas such as budgeting, saving and spending. But it doesn’t have to come exclusively out of your purse or wallet.
A big issue (pun intended), I have with automatically giving pocket money, or an allowance, is that it can easily create an entitlement mentality. Anyone who has seen their teenage child hand on hip, open palmed, demanding cash before going out on a Friday night will know instantly what I mean.
The other place where you regularly get money for nothing is from the benefits system and I don’t believe that many parents are deliberately training their kids down that route!
One of my favourite money experts, Loral Langemeier is quite definitive on the subject:
“NEVER PAY YOUR KIDS AN ALLOWANCE”
Loral argues that the best investment you can give your child is to teach them the value of entrepreneurship and the way that the economy works. So instead of paying pocket money every week, design exercises and activities that are truly focused on basic finance.
OK you may be thinking but how does this work in practice? Here’s an example, you might sit down with your child and organise some basic household tasks or chores such as doing the dishes or clearing the table. Work with them to assign a monetary value for each one of these tasks. Each week as they complete the list, pay them an agreed amount minus a small percentage that goes into a savings account specifically for them. This deduction functions a lot like taxes or regular savings accounts they’d have in the real world.
With teenage children you can add a bit more to this model, including how to manage a bank account, deduct expenses that might make sense given their age, or help save for the things that they’d want to buy.
Why do it this way? Not only does your child learn the importance of how the economy functions, but they also understand the value of their own work and services. As they develop their entrepreneurial muscles they may want to take on extra work or start a small businesses of their own. Plus you are automatically encouraging them to save.
Martin Lewis founder of Money Saving Expert and regular TV commentator in the UK is a fan of both pocket money and financial education – and he recommends encouraging children to work for their financial rewards, in order to embed a principle that will serve them well throughout life. Rewards for cleaning the family car or doing the washing up after dinner are great tasks to exchange an agreed amount of pocket money for, but it’s less productive to train children to expect payment for tasks they should be doing anyway, like cleaning their room or doing their homework.
In closing this discussion on the importance of pocket money, a quick word about consistency.
If you promise children a specific amount each week or month, make sure you stick to it. Paying pocket money on an ad-hoc basis will teach them that money promises can be broken; and they will value the money they receive less if you seem to attach little value to the act of giving it.
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It’s an age old parenting question, but one which still causes a huge amount of debate: should you give your child pocket money or allowance for doing chores?
