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Why Pocket Money Is Important

A child or young person having money of their own is an important rite of passage and pocket money can form the basis of excellent financial education in areas such as budgeting, saving and spending. But it doesn’t have to come exclusively out of your purse or wallet.

A big issue (pun intended), I have with automatically giving pocket money, or an allowance, is that it can easily create an entitlement mentality. Anyone who has seen their teenage child hand on hip, open palmed, demanding cash before going out on a Friday night will know instantly what I mean.

The other place where you regularly get money for nothing is from the benefits system and I don’t believe that many parents are deliberately training their kids down that route!

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One of my favourite money experts, Loral Langemeier is quite definitive on the subject:

“NEVER PAY YOUR KIDS AN ALLOWANCE”

Loral argues that the best investment you can give your child is to teach them the value of entrepreneurship and the way that the economy works. So instead of paying pocket money every week, design exercises and activities that are truly focused on basic finance.

OK you may be thinking but how does this work in practice? Here’s an example, you might sit down with your child and organise some basic household tasks or chores such as doing the dishes or clearing the table.  Work with them to assign a monetary value for each one of these tasks.  Each week as they complete the list, pay them an agreed amount minus a small percentage that goes into a savings account specifically for them. This deduction functions a lot like taxes or regular savings accounts they’d have in the real world.

With teenage children you can add a bit more to this model, including how to manage a bank account, deduct expenses that might make sense given their age, or help save for the things that they’d want to buy.

Why do it this way?  Not only does your child learn the importance of how the economy functions, but they also understand the value of their own work and services.  As they develop their entrepreneurial muscles they may want to take on extra work or start a small businesses of their own. Plus you are automatically encouraging them to save.

Martin Lewis founder of Money Saving Expert and regular TV commentator in the UK is a fan of both pocket money and financial education – and he recommends encouraging children to work for their financial rewards, in order to embed a principle that will serve them well throughout life. Rewards for cleaning the family car or doing the washing up after dinner are great tasks to exchange an agreed amount of pocket money for, but it’s less productive to train children to expect payment for tasks they should be doing anyway, like cleaning their room or doing their homework.

In closing this discussion on the importance of pocket money, a quick word about consistency.

If you promise children a specific amount each week or month, make sure you stick to it. Paying pocket money on an ad-hoc basis will teach them that money promises can be broken; and they will value the money they receive less if you seem to attach little value to the act of giving it.

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Invisible Money – How to teach kids about money in a cashless society

Think for a moment about how many of your day to day transactions are made with actual notes and coins. In a world without cash, what are the implications for teaching children about money?

The Global Issue of Invisible Money

In 2014, the US Parents, Kids and Money Survey suggested 73% of parents agree that because of digital transactions, kids think of money differently than they did when they were growing up. An Australian survey revealed that over one in three (35%) children simply don’t know how digital purchases are paid for. Whilst in the UK consumers recently passed an important milestone on the path to a cashless society, with cash now used for less than half of all payments. These statistics highlight the influence digital technologies can have on how children understand money.

Not seeing physical money exchanged for purchases makes it harder for kids to get their heads around what things cost and how money works. They might not easily see the link between the ‘invisible money’ of online payments or contactless purchases with real money eventually coming in and out of their own bank account.

invisible money how to teach kids about money in a cashless society

Where Money Comes From

It’s not difficult to see how in an age where we can slot a plastic card into a ‘hole in the wall’ and obtain physical currency, or where you can ‘tap and go’ to pay, how our children might not fully understand where the money used to pay for things comes from. One method of explaining this is to describe to your kids the purchase path or the flow of money; from earning it, to depositing into the bank and ultimately the final purchase and receipt.

Making the point of using cash occasionally, rather than electronic funds can also help to provide younger children with a visual representation of how currency works. Once they understand physical money you could slowly introduce them to the idea of online and credit purchases.

 

Pocket Money and Chores

Many parents recognise the value of using pocket money, or an allowance, to teach children about budgeting. Giving your children pocket money in return for jobs around the house can help them understand the connection between time spent doing work and money. A weekly pocket money allowance can also help to develop your kids’ budgeting skills. If you give them a weekly sum which includes both an element for daily routine activities plus some personal discretionary money, it can teach them to prioritise between needs and wants and make choices around spending and saving.

Understanding the True Cost

Mobile phones and tablets make it easier for your children to spend money online sometimes without even knowing it. Another example of invisible money is where many games and apps are now ‘freemium’ – meaning that whilst the app was initially free to download, it will proceed to ask users to purchase special features or content for a fee. If making app purchases is not prevented by a password prompt, then a couple of accidental taps in a game could cause your children to make real-money purchases.

Figures show that 61% of kids are buying apps or making in-app purchases every month, it’s important therefore as parents to establish some ground rules to ensure your child is conscious and aware of the money he or she may spend and its consequences. One useful tip is to ask for the money from your child before they make the purchase to establish the connection that it is still real money.

Setting up a bank account.

Once they are old enough and especially when your child has a job or gets an allowance, having a bank account and watching the balance grow (or shrink) is important. By downloading the bank’s app they can easily monitor and track his or her spending. Another important habit for later in life.

If you can’t beat them join them

The ease and convenience of cashless transactions puts us on an irresistible march towards a cashless society perhaps in your child’s lifetime. Get them prepared early by giving them a prepaid card with a weekly or monthly allowance. These cards can be monitored online and teach the principle that money, whether invisible or not, can only be spent once.

 

Kerching! Getting It Right When Teaching Your Kids Financial Responsibility

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One of the most important things you can teach your kids is financial responsibility. If you inform them of the basics, then you can be safe in the knowledge that they won’t squander everything they have once they move out. Teaching them this important life lesson at an early age will also get them into some good habits, such as saving and budgeting.

But how exactly do you teach your kids financial responsibility? Most of it comes from experience. However, these are some of the things that you can try and instil in them from an early age.

Reward Hard Work

It is important for children to know that the harder they work, the more they can earn. So next time your children spend a couple of hours doing some chores, consider increasing their pocket money accordingly. However, you shouldn’t pay them for all the chores you do. This can help to teach them that some tasks are just part of growing up. The tasks that go above and beyond should be rewarded. And you should remind them that if they go above and beyond in their career, they will reap the benefits.

Encourage Them To Save

Encouraging your kids to save their money from an early age can help them get into good habits for the future. If you do give them weekly pocket money, remind them that it is important not to save it all at once. If they save it in their bank, they can save up for something that they have always wanted. When they are saving, you should also let them know that buying things

this way is a lot safer than taking out unsecured loans. Make sure that older children know that second charge loans are the safer option if they ever run out of savings.

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Get Them Involved With Budgeting

Whenever you sit down to do your monthly or weekly budget, try and get your children to join you. They can then see just how much work goes into planning the family’s money. Give them a chance to make their own suggestions of how you should spend the money. It is also a good idea to take them with you to the supermarket so they can see the money in action. Tell them about coupons and comparing brand prices can help them to save a whole load of money!

Let Them Make Mistakes

At first, your kids might make some mistakes with their own money. They could overspend their pocket money and might end up annoyed when they have none left! You should leave them to make these mistakes and not bail them out. Otherwise, they will never learn the importance of being sensible with their money. After making the same mistakes a few times, they will certainly learn from their mistakes!

You might be wary about leaving your children in charge of their own pocket money at first. But it will certainly pay off, and they will end up being extremely responsible with their finances!

The ‘Pocket Money for Chores’ Debate

The ‘Pocket Money for Chores’ Debate - should you give your child an allowanceIt’s an age old parenting question, but one which still causes a huge amount of debate: should you give your child pocket money or allowance for doing chores?

The best answer we can give you is, ‘it depends’.

One obvious reason for linking the two is to encourage a work ethic. Giving pocket money for chores teaches a simple lesson: if you do the work, you get paid. If not, you don’t. Since children in the UK can only take on part time work at the age of 13 (except for certain ‘performance’ related jobs), pocket money provides a good way to teach this lesson at an early age.

But wait a moment… shouldn’t your children be helping out with the chores around the house anyway? A key part of being a family is working as a team and recognising the hard work of others. Giving money for chores runs the danger of creating a selfish attitude, and you also run the risk of hearing comments such as: ‘So you want me to take my school bag upstairs? What are you going to pay me for that?’ Also consider what happens if a child decides they aren’t bothered about getting pocket money a particular week. Does that mean they can get away with not doing their chores?

You can immediately see the pitfalls with the system. So what is the best way to overcome them?

Each family is likely to have a slightly different approach, but one of the best systems we’ve found is to pay your child a base amount of pocket money, which is unrelated to chores. This basic amount will teach them vital decisions about money and saving – whether they save their money to get something they really want, or whether they spend it straight away for instant (but often fleeting) gratification (that’s another issue entirely)

In the meantime, children should be asked to do basic chores around the house, but can be given the opportunity to earn extra ‘rewards’ by completing chores which are beyond their usual scope. Cleaning the car, for example, is a chore many parents agree they would like to reward their children for taking on. This reward can be monetary, but could also take other forms. One good option we came across is a sticker system. Every time your child goes above and beyond what is expected of them they are allowed to put a sticker on their chart, and once they’ve reached an agreed number, they’re allowed a treat. This could take a variety of forms: maybe a special purchase you both agree on, or possibly a special trip. The advantage of this system is that the rewards are flexible and can be varied depending on the individual child’s preference.

Of course, no matter what pocket money system you use, it is almost inevitable that your children will complain about their chores at some point. But if you talk the system through with them, explain why it’s fair, and, most of all, keep it consistent, you should find that these instances become far less common.

Do you agree? What are your own experiences with pocket money and chores? Share your thoughts below.

Gender pay gap starts early with pocket money

The Financial Fairy Tales Piggy Bank imageThe economic downturn has hit many wallets – but it has also hit children’s piggy
banks, according to a report from Tesco Bank. The UK’s pocket money budget
currently stands at around £40 million per week*, despite the fact that one in
four parents (24%) has reduced the amount of pocket money they give to their
children following the recession.

The report, entitled “Every Little Helpers” and the first in the Tesco Bank “Family
Matters” series, reveals that the majority of parents (71%) across the UK
expect help around the house from their children (aged 4-15 years old) in
return for pocket money. The most generous parents can be found in London,
giving children £7.81 per week in return for household chores, whilst the UK
average is £5.80.

Today’s mums and dads expect children to complete chores ranging from tidying their own
rooms to mowing the lawn in return for cash.

Top five pocket money earners

London                               £7.81

Swansea                              £6.68

Glasgow                              £6.46

Liverpool                            £6.38

Wolverhampton                £6.26

Bottom five pocket money earners

Wrexham                           £2.50

Chelmsford                        £3.40

Worcester                           £3.50

Leeds                                   £4.29

Bristol                                 £4.33

 Gender pay gap starts at an early age

The report also suggests that gender differences start early on in life. Boys are
more than twice as likely as girls to receive between £16 and £20 a week but
they are also more likely to spend their money within days. While girls are
streets ahead when it comes to saving, over a third of all children (38%)
regularly save-up their hard earned cash for something they really want.

Dr Elizabeth Kilbey, a leading child psychologist working closely with Tesco Bank
on the research, says: “It’s great to see so many parents across the country
rewarding and reinforcing children’s good behaviour with pocket money they can
then choose to spend or save. You can never start financial education early
enough in a child’s life and this approach is by far the best way to teach
children good habits.”

The majority of parents surveyed (65%) said they have had the financial equivalent
of the birds and bees conversation with their children; where money comes from
and what it’s for. “Financial knowledge is best learnt from a young age. While
parents can make it fun, money is not a joke and children should understand
this clearly. Parents work hard to provide things for the children. It’s
brilliant to see parents across the UK talking to their children about this,”
Dr Elizabeth Kilbey added.

 Parents helping kids onto savings ladder

Parents are actively helping their children onto the savings ladder and 35% of children
under 16 now hold their own savings account. However, over half (54%) of the
children in the UK are traditionalists, preferring to keep their coins and notes stashed safely away in a piggy bank.

Tesco Bank’s “Every Little Helpers” report explores children’s spending and saving
habits and how they can be taught the value of money through something as simple
as regular pocket money.

David McCreadie, Banking Commercial Director at Tesco Bank, said: “We commissioned
this research to understand the changing dynamics of family spending and this
report has provided us with interesting findings. It’s great to see parents
talking to children about money and teaching them savings habits at an early
age through pocket money.”

The report is available now for parents to download free at https://mediacentre.metafaq.com/help/news/everylittlehelpers/.