THE MAGIC MONEY TREE
When it comes to developing good financial habits, home is where the first lessons are learned, writes Peter Ranscombe
Knowing when to stop paying your ofspring pocket money can be a tricky negotiation
Few of us will ever forget the jobs we had to do to as children to earn our pocket money. Whether it was scrubbing the dishes and hoovering the hall or feeding the chickens and washing the ‘Landie’, those first tastes of cold hard cash as a reward for our labours are etched into our memories.
Times, it would appear, are a-changin’. The Halifax pocket money survey found that 26% of children would give up time on their mobile phones or games consoles if it meant they could avoid doing housework.
The way they receive their rewards is changing too; just 74% of kids now receive some or all of their pocket money in cold hard cash, down from 85% last year and 89% the year before, with the decline accelerating due to lockdown. Virtual tokens for online games are the preferred method of payment for 6% of offspring.
That dedication to screen time is reflected in children’s ambitions for their careers. The same poll found that 12% of kids want to work as a ‘social media star’, the joint third most-popular occupation alongside teaching, and lagging behind only professional footballer at 14% and doctor at 13%.
Among boys, social media stardom was the second most-desirable job behind kicking an inflated pig’s bladder around in the mud on a rainy Tuesday night. For girls, recording YouTube videos or snapping the perfect Instagram selfie finished in third place, with teaching topping the league table at 20%, followed by being a doctor with 14%.
Money is still the motivating factor for children when dreaming about their future: 32% listed pay as the top reason for picking a job, followed by 27% who want ‘to help people’, 25% who want to have ‘fun’, and 19% who ‘want to provide for my future family’, which – if we’re being realistic – is just a politer way of saying, ‘Show me the cash’.
One of the most fun parts of Halifax’s regular survey is when it asks children to guess how much people earn in different careers. Kids think the top footballers are paid £4.7 million a year, while guessing that the prime minister earns £2.4m a year, compared to the £79,000 they actually receive on top of their £82,000 salary as a member of parliament.
Children think social media stars earn £1.3m a year; while it’s hard to calculate the average earnings of ‘influencers’ because of how much they vary, a survey of professional bloggers found 30% of them charge between £100 and £250 per post. Perhaps I shouldn’t have deleted my social media accounts after all.
Until children reach those lofty goals – both in terms of careers and earnings – most expect the Bank of Mum and Dad to continue picking up the tab. More than half of kids think their parents should dole out money whether they’re asked to do household chores or not, in contrast to the 44% of parents who see helping
round the house as a prerequisite for a weekly or monthly allowance.
In fact, 57% of offspring expect their parents to carry on splashing the cash until they get their first job. Halifax helpfully points out the average age for a teenager to secure
“A third of adults would rather talk to their children about sex than money
the first paid gig is now 18.
At least some of those sprogs are in for a rude awakening. The average age at which parents plan to stop paying pocket money is 17, with one in ten planning to fell the magic money tree at 15.
Bridging expectations across that generational gap could be tricky for many parents. A survey by credit reference agency Experian found that a third of adults would rather talk to their children about sex than money.
Being squeamish when it comes to talking about pounds, shillings, and pence isn’t confined to conversations with the young sadly. A poll by debt manager Lowell Financial found that personal finance was the third most unacceptable topic of conversation between friends, followed by salaries and debt – only ‘sex life’ and ‘bodily functions’ were even more cringe-inducing.
Yet overcoming that embarrassment and having conservations about money is crucial when it comes to helping children to develop good financial habits. Experian’s research found 60% of parents worried about their children’s ability to manage their finances when they grew up, with 62% recognising they are the single biggest influence in shaping their offspring’s attitudes.
Research from The Money Advice Service shows that children who are encouraged to talk about money, who are given money regularly, and who are given responsibility for spending and saving tend to do better with money when they grow up. Many of our long-term attitudes and habits towards money have started to form by the age of seven, demonstrating the need for parents to act as role models for their children when it comes to handling cash.
Part of the solution could be to get the whole family involved.
If grandparents offer to pay into a child’s savings account – particularly if their gifts are linked to the youngster putting some of their own pocket money into the account too – then it could help kids to develop savings habits.
Savings account provider Scottish Friendly has been beating the drum for parents to open junior individual savings accounts (JISAs) and then inviting their own parents to join in, with regular deposits or gifts for birthdays and Christmas.
While JISAs may not match the old child trust funds – into which the Treasury paid £250 per child back between 2002 and 2011 – they do appear at the moment to have avoided the pandemic-induced drop in interest rates. While providers like National Savings & Investments decimated their savings rates, interest payments on JISAs stayed relatively buoyant.
Money put into a JISA is locked away until the child turns 18, at which point it morphs magically into a standard ISA. Up to £9,000 can be pumped into a JISA during the current 2020-21 tax year, with the accounts coming in two flavours – cash JISAs and stocks-and-shares JISAs.
Children, like adults, pay tax on income from savings if it exceeds their allowances, so it’s worth comparing the interest rate on standard children’s savings accounts with JISAs – although the fact the money’s locked away until they turn 18 could be tempting. When it comes to stocks and shares JISAs, like any investment, it all comes down to your appetite towards risk – and that’s a whole other conversation to have with your kids.