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To provide pocket money to children, how often and how much is a vexed question for many parents.
A 2018 Financial Planning Association report found two out of three children between four and eight receive pocket money. But when parents of under 5s talk to friends about pocket money, they often seek help on when to start and how much to give.
Kendall Flutey, CEO of financial education platform Banqer, says we may be starting with the wrong question.
“When it comes to pocket money we shouldn’t be thinking age, but rather, their stage. Children aged five or below can develop at extremely variable rates, meaning that using the arbitrary metric of age is often redundant,” Kendall says.
Once that is factored in, her own advice is “the earlier the better”, however there’s one big ‘but’.
“The best time to start giving pocket money is as young as possible, but only when the child has the capability to comprehend the transaction that is occurring in its most basic sense,” Kendall says.
“Look for the right levels of engagement and curiosity, as well as the right levels of communication,” she says, noting that while for most children this would be somewhere around four or five, it’s important not to feel limited by a number.
“An advanced two-year-old could still be ready to be introduced to the concept appropriately.”
Parents need to talk to their children about money. If they encourage children to budget and allocate money for spending, money for saving and perhaps money for giving, children begin to learn the responsibility and the agency that comes with money.
How much is the right amount?
The 2018 report Share the Dream by the Financial Planning Association of Australia, showed $6.20 was the average weekly pocket money allocation for four to eight-year-olds, lending credence to the theory that many parents allocate pocket money by giving children one dollar a week for each year of their age. Kendall thinks the answer of how much to give is more complex.
“The reality is that each family has different financial constraints and capabilities. Kids are already absorbing that, whether it’s explicitly being communicated or not,” she says.
As well as their own budget, parents should consider factors like their child’s numeracy comprehension.
“Keep in the realm of numbers the child can understand week after week as their savings grow,” Kendall says.
Should every task earn pocket money?
Like many experts, Kendall believes pocket money should be earned, and that there are some jobs in the family which just need to be done – fee free.
“First and foremost, your child is a member of your family, and as a member of a family all children should contribute to the family without expecting compensation. It’s important to have some core chores around the home that children do because that’s their contribution to the family,” she says.
After identifying those family chores, the remainder can be allocated as tasks which help earn pocket money.
“The division is up to individual families, but as an example a four-year-old might help feed the cat each day as their family chore. To earn their weekly pocket money they might also make their bed,” Kendall says.
Either way, Kendall believes pocket money shouldn’t just be a handout.
“As responsibilities grow, so too should the remuneration. This teaches a good work ethic and presents children with an opportunity to be in control of their own financial betterment,” she says.
Does pocket money really help children learn about money?
While pocket money is typically given to help children learn early financial literacy skills, Associate Professor Catherine Attard from Western Sydney University says this only works when there’s a plan that goes well beyond the allocation of funds.
“Parents need to talk to their children about money. If they encourage children to budget and allocate money for spending, money for saving and perhaps money for giving, children begin to learn the responsibility and the agency that comes with money,” she says.
Saving, giving or spending?
Some researchers believe our ‘money personality’ develops as early as age seven. If that’s the case, four or five becomes a perfect time to help our kids learn to save.
“There is no right weighting, but the repeated, continued practice of saving is perhaps more important than the dollar amount. When this child becomes older, they should be well versed in being able to delay gratification when they want to, so the proportion can lax a little. However, they will have developed the necessary skills to save should they choose,” says Kendall.
Pocket money is also an excellent opportunity for children to be introduced to other ideas, like charitable giving.
“This is a fantastic opportunity to teach a child about other people and causes in society. It’s a way for them to contribute to social betterment, and understand why we don’t only think about ourselves,” Kendall says.
Keep the experience visual
For under 5s Kendall says it’s best to keep money as tangible as possible: a feat that is getting harder by the year.
“I’m a big fan of physical piggy banks as it’s proven that the tactile experience with money for this age group reinforces their learning. That said, children under five will be exposed to the world of digital finances every time they see you tap or swipe. It’s important to begin bridging this gap and communicate what is actually happening, to remove some of the magic,” she says.
Kendall Flutey’s pocket money tips.
Tip 1: Be inclusive
Lift the financial veil in your household by including your child (where possible and appropriate) in financial conversations, transactions or experiences. This could be as simple as letting them carry the money to buy a coffee one morning.
Tip 2: Model good financial behaviour
This doesn’t mean getting it right all the time. Just be self-aware and conscious of the role you play in your child’s financial future.
Tip 3: Normalise money talk
Make talking about money a normal part of family life. Don’t shy away from questions or comments and never shame your child for wanting to talk about money: it’s a great learning opportunity.