POCKET MONEY
Pocket money is a great way to help children learn the basics of managing money. However, how much pocket money you give, when you give it and whether you give it at all depend on your family circumstances and values.
Pocket money basics
Giving pocket money to children as young as 4 or 5 years helps them start learning about the value of money and money management. For example, when children get pocket money, they have to make choices about spending or saving. If they’re saving, they’ll learn about waiting for things they want.
Pocket money can also help children learn about the consequences of losing money. Letting your children make a few mistakes – like spending all their hard-earned savings on fake tattoos instead of something more useful – is part of the learning process.
It’s alright to put limits on what your child spends his pocket money on. For example, you might discourage him from buying candy if that interferes with his appetite for nutritious food or you want to protect his teeth from decay.
When to give children pocket money
There are no hard and fast rules about when to start giving children pocket money.
Your child might be ready to try managing some pocket money if he understands that:
- he needs money to get things from shops
- it’s important to save money, and not spend it all
- spending all his money today means there’s no more until the next payment.
How much pocket money?
This depends on your circumstances and what you think is reasonable. As long as your child understands how much he’ll get and how often, he can start learning how to use the money well.
You can base your decision about how much pocket money to give on:
- what household chores you expect your child to do
- what your family budget will allow
- how old your child is – for example, you might give a five-year-old $5 per week and a seven-year-old $7 per week
- what you expect pocket money to pay for – for example, if you expect it to cover things like transport, lunches and savings, you might need to give a little more.
What should pocket money cover?
Pocket money could cover any of the following things:
- saving for a special game or toy
- special outings like the movies
- gifts for siblings and extended family members
- for recess at school.
Letting your child manage his pocket money is a great way for him to develop a sense of responsibility and independence.
Pocket money and chores
Paying your children to do chores around the house is a complex issue. No single rule is right for every family.
Some families feel that everyone should help with chores just because everyone is a member of the family. Also, linking children’s chores to pocket money might lead to bargaining about how much chores are worth.
On the other hand, some families feel that pocket money should be earned and not just given. Giving pocket money can motivate some children to do chores.
If you do decide to link pocket money to chores, it’s a good idea for the chores to be regular – for example, tidying up the bedroom daily or weekly, throwing the rubbish out daily, feeding the family pet everyday, washing the car weekly and so on. This gets your child in the habit of working to earn money.
You could also consider not linking chores to pocket money, but paying extra pocket money for extra chores.
If you choose to pay pocket money for chores, explain chores clearly so there’s no confusion or bargaining about what needs to be done and when.
Tips on giving pocket money
Here are some pocket money tips:
- Explain to your child what pocket money is for and what it isn’t for. For example, if pocket money is to cover entertainment or food, agree on what kinds of entertainment are acceptable. It might help to write a list.
- Negotiate guidelines about how much money can go into saving, spending and donating. For example, your child and you might agree that your child puts 50% of his pocket money into savings, 40% into spending and 10% into donating.
- Pay what you can afford, regardless of what other parents (or your child!) might say.
- Pay it on a set day. You might choose to pay weekly, fortnightly or monthly.
- Set up jars to help your child divide his money – for example, one jar for spending on small things he wants now and one for saving towards bigger things.
- Put saved money in a money box. As the level grows, it highlights the achievement of being a good saver.
- Try not to supplement pocket money or pay in advance – it’s all about teaching your child to spend no more than he receives.
Learning about money
Your child learns a lot by watching you and how you deal with money. Spending, saving or donating money – they’re all chances to teach your child more about the basics of money management.
As children get older, you can teach them about:
- The value of money: The relative price of things
- Spending: Accepting that money is gone once it’s spent
- Earning: Understanding that earning money can be hard work, but usually that’s the only way to get it
- Saving: Using short-term and long-term goals
- Investing: Learning that you have the chance to earn more when you invest
- Borrowing: Understanding the importance of repaying borrowed money
- Opportunity cost: Understanding that when you use money to buy something, you give up the chance to buy something else with that money.
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