Money, Money, Money, Makes Me Funny: Pocket money and its use in your family

Smart parents know that there must come a time when they need to start teaching their children about the value of money. But when is that time? How much should you give? How do you get a balance between doing jobs around the house for money and just helping out?
Pocket money is one of the first ways for children to learn the basics of managing money. Children learn their attitudes towards money from home and from watching you. Giving pocket money helps children feel independent and creates the opportunity to teach children about spending thoughtfully and saving. It helps teach children about making choices, saving up and waiting for things they want. All skills they'll definitely need for life. Your child is ready to learn about money when he or she understands that you need money to get things from shops.
 

Some specific things children can learn:

• the value of money
• spending: accepting that money is gone once it’s spent
• earning: understanding that earning money can be hard work, but usually  that's the only way to get it
• saving
• borrowing: understanding the importance of repaying borrowed money

Some ideas about how to deal with the pocket money issue in your family:

Gimme Some Money

Give pocket money at a specific time each week (payday). With older children and teenagers it could be given per fortnight or even monthly.
 

Money (That’s what I want)

The amount of pocket money needs to be linked to age, stage of development and their needs (not wants):  A child in pre-school and lower primary school may get enough to buy some lollies and a sticker book.  A child in upper primary school may get enough to cover lunch orders, bus money, presents for friends and something for themselves. Teenagers ‘allowance’ could cover clothing.

Money is Too Tight to Mention

Regardless of the amount of money, giving pocket money to children as young as four or five helps them to begin learning about money management. As long as your child understands how much he or she will get (and how often), they can start learning how to use the money well. Pay what you can afford and what you think is reasonable, regardless of what other parents (or your child!) might advise. Equally, if your family finances or values mean you’d rather not give pocket money, that is also an important lesson for your children. Just let them know the reason for your decision and what you want them to learn from it.

Money Makes the World Go Round

Just as it is great to get your children to help around the house as a part of belonging and contribution to the family, you can also give a certain basic amount of pocket money just because he or she is a member of the family. Children contribute to the family in many ways; don’t just make it about jobs and being ‘good’ – they bring fun, joy, kindness and lots of love! In this way, children learn that doing jobs and receiving pocket money are both important, but represent 2 different ways of contributing and achieving a sense of belonging in the family.
Extra pocket money can be given for specific ‘extra’ jobs that they can do to earn money, such as mowing the lawn or washing the car, or for younger children, watering your favourite garden bed or pot plant.
 

How this works:

There are two types of pocket money:

1. Earned - The earned money is dependant on them doing their jobs. If they fail to do them, then they lose out on the allowance.
Be specific about the jobs and behaviour that this ‘contribution’ expectation includes. E.g. Setting the table, picking up your own toys, using lovely manners, looking adult friends in the eye and saying hello)
So, if they earn it they get it, if they don’t earn it, they don’t get it. You can not take the earned money away from them for other misbehaviour.

2. Unearned, just for being part of the family.
The unearned money, on the other hand, can be docked for any misdemeanor, since they are not ‘contributing’ to the family in a positive way.

Let’s have a look at what pay day might look like:

Suppose that Hannah gets $5 per week, half unearned, half earned.
Week 1.  Great week, jobs done, good behaviour. Hannah gets the full $5
Week 2. Not so good. Job’s done, but deliberately broke her brother’s toy. Get’s $2.50 for jobs done, but no more as she needs to contribute to buying her brother a replacement toy.
Week 3. Average behaviour. Only did some of the jobs. Hannah gets $2.50 unearned and $1.50 for the completed jobs. (As per original agreement where you would have decided how much is earned per job.)

For the Love of Money

The three jars concept is popular for teaching children about having to make choices, saving up and waiting for things they want. Provide three jars for children when you give them pocket-money – one for spending, one for saving/investing and one for charity. Ask children to distribute their pocket-money among the jars. Giving children coins rather than notes makes this activity easier! This gives you the chance to teach kids a great deal about money and its use. For instance, you can get across the idea of saving before spending – i.e. setting aside an amount of money for saving/investing rather than just saving what they have left over at the end of the week. You can also introduce them to the idea of being thoughtful and generous by setting aside some of their money for charities that they are interested in. E.g. Save the Bilby Foundation.

Take the Money and Run
 

If you get sick of your children asking you for treats when out shopping or wanting the latest fad or gadget while watching ads on TV, suggest that they can buy it or at least make a contribution from their pocket money. If you are pestered at the supermarket to buy an ice cream or some such treat you can say, “You can have an ice cream out of your own money. If you haven’t any money with you I’ll buy it and you can pay me back when we get home.”

Money Changes Everything
 

Giving pocket money can teach children about goal-setting: By encouraging children to save for a big item (or even to make a contribution) children learn a great deal about planning, budgeting and they get to experience the satisfaction of reaching a goal. Remember, it is important to let your children learn from their mistakes (that is why teaching them when they are young is better than waiting until they are older and the mistakes could have more negative impact on their lives. E.g. Unmanageable debt) So, if they are saving up for a new WII game and they go off and spend their money on small items, talk to them about how it is just going to take longer to get what they really want.

Money for Nothing

I once heard a story about a 10 year old boy who was part of a family that was 4th generation unemployed. When asked where money came from, he confidently replied “You go to a special building every second Thursday, line up, and they give it to you.” When asked what you have to do to get the money, he impatiently replied, “You line up, like I just said” Is this what you want your children to learn? Money comes from Mum or Dad when you ask for it? In some families children are given what they ask for. If this is what you decide, make sure you have thought about what this method teaches your children about money and share that with your children. For instance, you might want them to learn to ask for things that they ‘need’ (E.g. New colouring pens) as apposed to what they ‘want’ (E.g. A donut and drink every time you go shopping, or a new outfit for a partywhen they already have plenty). Whatever you choose for your family is perfect, just as long as you have thought it through and you are able to articulate the ‘money message’ you are trying to pass on. 

The main reason for giving children pocket money is to help your children learn to be able to manage money while they are still young and you can guide them. It also may help children to feel that they are important members of the family because they are given part of the family's spending money. When used wisely, pocket-money is an excellent way to develop independence in children.