From our recent poll on the Money Moppets website and Facebook page, we found that the average pocket money amount paid weekly is $8.34. And 64% of our readers are paying their children pocket money for doing jobs.
Financial literacy in adults begins with the habits that children develop as their parents educate them about money management. One of the tools for this education can be pocket money.
If used correctly, pocket money can be a tool that helps a child learn how to handle her own money.
They can learn to plan their spending in such a way that they rarely come up short. They may make some mistakes along the way, but will learn how to make the kind of choices that fit into what they want. If the pocket money is at first a small amount to be used only for a few extra things the child wants, but then develops into a larger amount that covers their weekly expenses, they can learn not only money management, but also how to be responsible for their own well-being and independence. If a child’s pocket money is connected to household jobs, then they can learn the connection between work and pay.
Not everyone agrees that children should receive regular pocket money.
Some people believe that children who receive unconditional pocket money not tied to jobs end up viewing money as an entitlement.
Children that receive pocket money in exchange for doing household jobs may make such a strong emotional connection between money and jobs that they end up expecting to be paid for every small thing they do. As a result, they do not develop the feeling they are part of a team/family.
How Much Pocket Money is the Right Amount?
According to the Commonwealth Bank of Australia, it seems that most parents give pocket money in the following amounts.
When it comes to giving pocket money, parents have some very difficult decisions to make so that the system of receiving pocket money results in positive outcomes, like developing independence and responsibility, learning how to manage money and delayed gratification, and understanding the value of money.
What System of Giving Pocket Money Is Best?
There is no set right or wrong about one system of dealing with pocket money over another. How parents handle the issue of pocket money and educate their child about money management will determine whether the system they’ve chosen is right.
Pocket money for kids can be tied to household jobs. According to the Commonwealth Bank of Australia, most pocket money is connected to jobs that the child does around the house. This system can help a child appreciate the value of money, but the parent must take care not to foster the notion that the child should be paid for every small help they give. If this system is not handled well, the parent can end up losing control of the child.
Pocket money can be tied to grades at school. This is another system that could backfire. Some children might be motivated to study hard in order to get a financial reward, but others might end up being overly stressed.
Pocket money can be connected to behaviour. There probably isn’t a parent in the country who has not been guilty of bribing a child for good behaviour. If done sporadically, it probably will not result in lasting harm, but if done on a regular basis, children might develop an attitude that they only have to be good when being paid.
Proceed with Caution
What works for your friends and their children might not work in your family. And what works with one of your children might not work with another. Evaluate each child and your current family situation, and proceed with caution.
Many parents I have spoken to ask the question from time to time, "is my child spoilt?" or remark "my child thinks money grows on trees". It's not that surprising considering that we live in a time when when buying items via the Internet is immediate and advertising is everywhere you turn.
I was confronted just the other night by my two year old who was watching one of her kids shows on TV. Every ad she saw the words that came out of her mouth were "I want that".
Wanting things is not new, and not always knowing the difference between wants and needs is not new either. But as parents, one of the ways we can educate our kids about money is by explaining the difference between things that are made and things that are bought. Show them something in the garden, like herbs or flowers. Discuss with them that If we grow these ourselves, we don't have to pay for them. But if we get them from a shop or somebody else, we have to pay money for them. You can round out the lesson by pointing out that if you have more herbs or flowers than you need, you can sell the excess in return for money. This is one way to earn money.
Kids need to get to grips with this key concept of the exchange of goods and services for money. It's also a good way to tackle that "my child thinks money grows on trees" problem - you're linking the idea that ultimately money is bound to finite amounts of goods or services - in this case how many flowers or herbs are available in the garden.
In everyday events, talking to your kids about where money comes from, what you spend it on and why you save is the best lessons a child can get at a young age. Watching their parents as role models in and of itself helps to create good money habits. A practical way to show kids that money cannot buy everything is to take them to the shops or give them some money to spend at their canteen. Give them say $2 at their school canteen and let them make the decision about what they can afford and what they cannot. Being able to make these choices and then understand that when the money is gone, it's really gone, is the first step in training a money superstar.