Working out pocket money
Dr Justin Coulson,psychologist and author outlines 5 key ideas to keep in mind when deciding whether or when to give kids pocket money.
The first question parents need to consider when thinking about kids and pocket money is: “What is my motivation for giving pocket money?“
Do you want your kids to have some money to play with? Do you want them to learn to budget? Are you trying to teach your children financial literacy?
Answering the question of motivation for providing pocket money will influence the pocket money policy you implement in your home.
In our family, we decided that pocket money was going to be a mechanism for our children to develop good financial habits. If this is your goal, too, these principles will make your family pocket money decisions easier.
1. Start when they ask
Chances are, your children won’t seek pocket money until they have developed some basic numeracy skills and they recognise that money will get them things they want.
2. Make it an appropriate amount
When our children ask for pocket money, discuss the appropriate amount together. Come to an agreement and keep their pocket money at that level until they reach certain goals (demonstrating their fiscal responsibility) or until they can negotiate a higher rate. As children’s age increases so too does their income, but also their responsibilities in relation to what they need to purchase for themselves (e.g. toiletries, bras, undies etc.)
3. Keep it separate
This is often a contentious point. Here is why I recommend giving pocket money irrespective of whether chores and responsibilities are being carried out: First, when children are compensated for completing chores it promotes the belief (in them) that they should only work around the house if they are paid. Instead, teach children that we do chores because that’s what being in a family entails, pocket money or not. Second, it eliminates the power-based threat of “if you don’t do your chores, you don’t get your pocket money.” Third, it allows for financial accountability to be accentuated, as in the next guideline.
4. Accountability and goals
We have taught our children to use their money wisely by giving a 10 percent charitable donation to an organisation that represents their values, saving 50 percent for when they’re ‘older’, and keeping the other 40 percent for ‘spending’.
Encourage children to set monthly savings goals above what could be attained by only depositing the 50 percent savings. Then, each month they will attempt to reach their goal by also investing some of their ‘spendings’ as savings. This teaches delayed gratification.
Children LOVE seeing bonus interest from their savings. And they often readily sacrifice ‘spending’ money to boost their savings and achieve their goals.
Sometimes, rather than setting a ‘savings’ goal, they’ll indicate that they want to use their spending money to buy something big (perhaps a book, game, or outing). So long as they’re working towards a goal, we find they don’t fritter their money away on junk food or the tuck shop.
5. Avoid threats
Finally, as tempting as it can be, don’t threaten to stop pocket money due to challenging behaviour. Money and behaviour should not be linked. Teaching children how to manage money is unrelated to teaching them about managing their emotions and behaviour. Using these guidelines has created motivated savers who spend small amounts on junk food and useless toys, and who set financial goals which they achieve.
This article was written by Dr. Justin Coulson and originally appeared on our sister site www.kidspot.com.au