As children reach an age where they demand some financial freedom or in simple words seek independence to spend money, one question that comes to the mind of every parent is – should pocket money be given to children?
A friend once said to her daughter, “We don’t have money for that this month. Let’s buy it later.” Pat came the reply- “Why don’t you just withdraw money from the ATM?’
While this is certainly cute and innocent on the little girl’s part, it is a lesson for parents to teach children that money doesn’t grow on trees. Or in this case, doesn’t come out of the ATM just because we wish to.
Money management is an indispensable part of adulthood. How well you spend, save and invest will reflect in your future. In a country like India, children are often expected to know everything about expenses, investments, taxes and loans as soon as they are 18 or when they start a job. But without being exposed to money early on in life, this is impossible.
A study by the University of Cambridge on Habit Formation and Learning in Young Children explains that basic notions about money start developing in children’s minds at the age of 3. And most financial concepts are in place by the age of 7.
Most parents believe their children are too young to handle money. They are not only concerned that their kids might fall into the wrong company but worry they may also misuse money and lead to self-harm. Similar to how a coin has two sides, so does this circumstance. Therefore, we cannot make a snap judgement regarding whether or not to hand out pocket money.
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So, how much pocket money should a child get?
Age 3 and above
By the age of 3 or 4, children have started counting. You can introduce them to money by showing them physical currency. Let them get a feel of notes and coins. You can ask them to identify the colours and numbers on them. For children who are 5 or 6, you can also ask them to arrange currency in ascending and descending order. Of course, you must monitor these activities so that a coin doesn’t accidentally end up in the kid’s tummy.
Age 7 and above
Kids are naturally curious creatures and it is good to respond to their curiosity by including them in activities.
Take them shopping with you for groceries. Ask them to collect bills and receipts. Hand them money to pay the cashier and ask them to count the change. This will make them feel involved, while indirectly teaching them different transactions as well.
Games like Junior Monopoly, Business and Life are also fun ways of learning about money management.
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Age 11 and above
Let kids use the ATM with you. Show them the total amount you have and explain that it has to be used in parts, according to needs. So that they know that money is limited.
Also, at this age, children can make decisions about how they want to spend their own money. This amount can come in the form of pocket money, gift money that they may receive on special occasions, or both.
To give children pocket money or not, is a question that has long been debated. But many believe that pocket money is a great tool to teach kids how to handle money.
How much pocket money should be given?
How much pocket money you give your children depends on your income, their needs and their age.
Explain this to them so they don’t compare their pocket money with what others receive. Young children can get a small weekly amount so they are easily able to keep track of it. Slightly older children can receive a monthly allowance.
Parents must insist that all children maintain an allowance journal, where they write how much they spend and for what. Parents must monitor this so that they can be sure that kids are not spending unnecessarily or on the wrong things.
Piggy banks and money jars are interesting options to teach children about earning, spending and saving.
Initially, children may exhaust the whole amount before the end of the month. Let them. Next month, they will be more careful.
Sit with kids and ask them what they would like to spend their money on, why and when they can do so. If they want something that is expensive and requires them to save, they have to forego something else that they want immediately. Parents can also introduce the concept of Wants and Needs by giving examples of school supplies. A uniform, for instance, is a need (without which the child cannot go to school) whereas a new tiffin box is a want that can be fulfilled later.
Having pocket money teaches children patience, discipline, and most importantly, delayed gratification by becoming mindful about their expenditure.
It also helps them understand how to set short-term and long-term goals. They learn that any decision they make will have repercussions and that they must be responsible for the same.
Where does the money come from?
Some parents pamper their kids to the point that every demand is met instantly. This can make children materialistic. Also, they won’t learn the value of money and feel that their parents have an infinite amount.
Apart from pocket money, encouraging children to do small tasks in exchange for some cash will give them the chance to earn. Children spend earned money more carefully than money that is handed to them. This does not mean that you bribe children into household chores, tidying their room or studying hard. They must do this as a family member helping in the house without expecting any reward for it. Incentivizing extra chores like washing their bicycles or de-cluttering their toys and organizing a garage sale can be an extra reward in their piggy bank. This will teach children that one must work to earn and that parents work hard to earn and provide for the family.
Including your kids in financial discussions
If the family is planning to buy a new fridge vs. a new TV, explain to the kids what is more important, compare costs, and check budgets. Children above the age of 8 or 9 can certainly think about it and give their opinion.
Apart from spending and saving, children must learn to keep their money safe and also to use a part of it for someone in need. If children see parents doing charity or donating money, they are more likely to imbibe it.
Demonstrate good financial behaviour
Practice what you preach. Children learn more by seeing than by listening. Be consistent and patient. Financial management is not learnt in a month. Be stern. Don’t give in to their demands. Monitor their financial activity and always; always be approachable.
Bottomline
There are two schools of thought when it comes to thinking about should pocket money be given to children. Some parents agree and some don’t. However, giving children pocket money has the most significant advantage — teaching them independence, which is essential for success in today’s world.
Children feel more attached to their parents and believe they trust them when they are given money to play with. As adults when they will have money to manage, they will be prepared to handle it and appreciate its value. The majority of parents worry that their children would misappropriate the funds they are given, yet until you trust them and allow them to help with their costs, they will never understand the difference between “use” and “misuse” of funds.
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