Parents face plenty of decisions when it comes to raising their children. But one question all parents will need to ask themselves at some point is: should I give my kids pocket money?
There’s no right or wrong answer, though you might be interested to know that a recent survey conducted by Australian financial comparison website mozo.com.au as part of their 2021 Piggy Bank Report found that 63% of parents are currently giving their kids pocket money.
How much are children receiving you ask? Well, 7 in 10 parents reported giving their kids $10 or less each week, while 2 in 10 parents said that they gave between $11 and $20.
So is a pocket money system or a regular allowance the right thing for your family? That’s the major question, but here are three reasons you might want to consider it.
1. It introduces kids to the concept of money
Like it or not, it’s hard to downplay the significance of money. It’s an important part of life, and something kids are naturally curious about. So what better way to start teaching children about the fundamentals of finance than with their own money?
Setting up an allowance can help kids get to grips with basic concepts like the different forms money comes in (coins, notes or even a digital balance) as well as the various ways money can be transacted (via cash, cards, smartphones, digitally etc.)
Pocket money can also be a great way to start giving your kids the freedom to make their own financial decisions – namely, what they would like to spend their money on and where they would like to spend it. Of course, this also comes with the added lesson that money is finite, so they’ll have to spend their money wisely!
Fun fact: 78% of parents pay their kids pocket money in cash! The tangibility of coins or notes could be a benefit for younger children just getting familiar with money, though it’s not unusual for parents to organise a bank card for older kids given the greater flexibility and convenience it can provide.
2. It encourages reward for effort
Helping kids get to grips with the basics of money is one thing, but the concept of earning is another important idea that an allowance or pocket money could help foster.
After all, most families aren’t just handing over cash to their kids. For the majority, pocket money is a system which encourages reward for effort. In fact, 89% of parents said that their children earned an allowance by helping out with household chores.
Of course, these responsibilities can change with age, but some of the more popular ways children earned their weekly pocket money were by tidying their rooms, washing up and clearing the table after meals or by taking the family dog for walks.
Top tip: Once you’ve negotiated the conditions for pocket money with your kids don’t be afraid to stick by them. An allowance should be a privilege to be earned, not money that is simply handed over, which means you may need to withhold it if expectations aren’t met, though you’ll want to be clear as to why.
3. It can help foster good saving habits
Saving money: it’s one of the fundamentals of successful personal finance, and it’s certainly a good habit that parents can foster in their kids early on through a regular allowance.
Ideally, you’ll want to make saving a prerequisite for your kids to receive pocket money though. For instance, if you’re giving them $10 each week, they’ll need to put 20% (or $2) of that money away in a piggy bank or savings account to be used for a future goal.
And goal setting really is key. One way to do this is by sitting down with your kids and coming up with something that they’d be excited to save up for, like a video game or toy. Then to encourage them, make an agreement that you’ll contribute 50% of the cost of whatever they’re saving to buy as long as they save up the other half.
Fun fact: 62% of parents also make additional contributions to savings accounts which they’ve set up for their kids. Of those, 6 in 10 contribute $1-10 each week while 3 in 10 add an additional $11-$20.
Conclusion
There are a number of great reasons why giving your kids an allowance or pocket money could be a good idea, but at the end of the day it’s a decision that you’ll have to make as a family based on your own financial situation and what you hope your kids will get out of it.
Author Bio
Tom Watson is a money writer at financial comparison website mozo.com.au, specialising in consumer banking and property. He’s passionate about helping people make better money choices on everything from their mortgages to their savings accounts.
