Pocket money an educational tool
PWhen?
arents are often told they should give their kids pocket money for practice handling finances. But how much, when, and how?
How much?
The hardest question to answer first. How much money you give as pocket money will depend on your own circumstances and the age of your child.
Some people suggest $1 for every year of age – whether that’s weekly or monthly is up to you. It also varies according to what you expect them to do with the money.
If it’s strictly for little treats, then they can probably manage on a smaller amount. If you want them to use it to cover all their outside-school activities and buy their own clothes, you will need to pay a bit more.
There are two competing ideas about when to give pocket money.
Some people argue that it should be tied to performing chores, so that kids get used to working for their money.
Financial trainer Hannah McQueen takes this view. She pays her kids for specific tasks.
‘‘If those are done regularly then it forms regular pocket money. But as soon as you pay when the task hasn’t been done, then you undermine the lesson the pocket money is trying to serve.’’
The other perspective is that it should be a set amount each month because the consistency helps teach kids to budget – and they should not expect to be paid for doing their bit around the house.
Commission for Financial Capability personal finance editor Tom Hartmann takes this approach with his children.
‘‘I prefer to give it with no strings attached, since it unfortunately can come off as a bribe to get the chores done. Sure, it can also be compensation for having to do the work, but then you get into this space of having to shut off their pocket money if the chores don’t get done, which is a chore in itself.’’
How?
For younger kids, it can be helpful to give them physical cash that they can touch and see.
The idea of a bank account can be a bit theoretical for the youngest savers.
Hartmann said he started his kids with coins in jars because it was easier to see than a piggy bank. They have since moved to digital accounts.
Banks are coming up with new things to help, too. ASB’s Clever Kash allows you to keep the money in an account while also giving kids a tangible money box.
Parents transfer money into the child’s bank account and then use an app to swipe virtual notes and coins towards the Clever Kash money box.
Hartmann recommends, however you do it, to have more than one jar or account set up for your kids. He recommends dividing each payment into spending, saving, giving and growing money.
‘‘Giving’’ money is used to help charities or other people and money in the ‘‘growing’’ account or jar can only be spent in order to make more money – through investing or some sort of entrepreneurial venture.
‘‘They haven’t used them much so far, but it’s been good for them to see those accounts growing steadily while the others go up and down throughout the year.’’