There will come a time when every child will want their own spending money. But pocket money is a subject that if not done right, may not teach them the true value of money.
Dr Pushpa Wood, director of the Westpac Massey Fin-Ed Centre, goes over the basics to ensure your own family’s pocket money system is effective and teaching them money skills that will pay off in the future.
When and why
“The first thing you should ask, after checking your budget that you can actually afford it, is why do they need pocket money and what will they be using it for,” Dr Wood says.
“You need to know what they intend spending their money on, because if they are still asking you for money to go to the movies even after you’ve given them some money, then the pocket money may not be being put to good use.”
And as to when pocket money should begin?
“I hesitate to put an exact age on when pocket money should be given as all children develop at different rates, but I would say that whenever your child starts spending money is good.”
When and how
Once you have decided that now is the right time, you need to develop the system that you and your child will agree to, your “contract” if you will.
“You need to set the ground rules upfront,” Dr Wood says. “Let them know what you expect from them in order to maintain the allowance.”
Dr Wood says that if everyone is on the same page from the get-go, then there will be less conflict in the future.
“It would be unfair to suddenly take away pocket money without any warning, so talk about that at the beginning to avoid issues later on.”
The other important lesson to incorporate into your “contract” is lessons about saving and budgeting, as well as giving.
“I like to use the rule of thirds, which is one third of the money can be saved, one third spent, and the other for giving, and they can choose which charity that money goes to.
“This is sometimes changed to the rule of quarters, depending on your values, with the fourth quarter being invested.”
Don’t reward expected behaviour
One big no-no Dr Wood points out is that pocket money shouldn’t be used as payment for doing everyday chores.
“I would never give pocket money as a reward for doing things that are an expected part of living in a family. Things like keeping their room tidy or unstacking the dishwasher.
“However if they were doing things above and beyond, then yes that would be ok.
“I remember when my daughter was growing up and was looking to earn extra money for things she wanted to buy, we negotiated a way for her to do so. She helped me order my work papers and did some typing for me, and on another occasion she went over to her grandmother’s house to do some spring cleaning for her.”
Can’t afford pocket money? There are other ways
If you are not in a position to spare pocket money, Dr Wood is adamant that you shouldn’t put added financial stress on yourself just because you know others are doing it.
“Don’t feel pressured into giving pocket money just because the neighbours do. There are other ways you can teach about saving and budgeting with your children.
“One example is to allow them to manage the weekly shopping budget. If they are able to buy all the items on the shopping list for under the budget, they can then use the remainder to spend on items of their choosing.
“It’s amazing that before doing this, many kids will only eat top brands, but once they know they can spend the savings, all of a sudden they are ok with eating the budget brands.”