Pocket Money and Matters Financial Paper by Ruth Coppard

In the same way that children need to practise physical skills, I believe they need the opportunity to practise financial management before it becomes critical to their life – even a fourteen year old is capable of surviving without any money – all their crucial bills are paid for and they have no dependents. But a child needs to develop his own attitude to money before it becomes a vitally important issue. This is harder than it sounds.

Children vary enormously in their attitudes to money – some children have very little interest in money per se, don’t covet sweets or toys and can’t see the point of saving. Others spend money as if it’s going out of fashion, would prefer to buy sweets rather than to take them from home, and constantly ‘want’ more of everything. Some children would rather do without than make any effort to obtain the things they want. Others have a work ethic that sees them constantly striving to earn more. But it’s important for all children learn that things cost money and that most of us have to decide on financial priorities at some time in our lives.

How much to give and when to start?   Obviously the amount of money you choose to give your child depends on your particular circumstances and the age of the child. It is easiest to start giving a child pocket money when he is about seven. There are several rules that pertain whatever the age of the child and however you live:

a] Younger children should have less money than older children in the family.

b] Pocket money ought to be a finite quantity so that the child learns to think and budget – there should be no opportunity to get more money during the week, other than by working

c] A child should be able to do whatever they would like with pocket money – pocket money doesn’t count if it all has to be put into a savings account. This is about learning that each £1 can only be spent once.

d] If for some reason, the child needs to pay for some misdeed, they should lose only half their weekly money – for a longer period of time.

e] Any money comes at the end of a week, a promise, or a task – adults might live on overdrafts, children should not.

f] Pocket money should not depend on work done. Some money should just be given so that the child learns to budget. BUT if your child won’t go to school, or co-operate or be pleasant, then it is reasonable to give your child a basic, minimal, amount and offer more for compliance in other areas.

What pocket-money teaches children.

A] Young children have no idea about the value of money – and shouldn’t really. This is a grown-up thing and they will have considerable responsibilities later. But pocket money can be made a strong marker of regard for the child. It is a delineation between him and his brother – he will have less than his older brother, more than the younger. Expectations of how much help they might be expected to give can be linked to this – you are the oldest, you get more pocket money, I expect you to do more to tidy your bedroom.

B] I believe all children should have pocket money as a basis for understanding commerce later. It doesn’t matter if a child runs out of money; in adolescence it might, in adulthood it can be critical. So the child should be allowed to ‘play’ with amounts of money, perhaps to waste it and regret it, perhaps to spend it all on Tuesday and then be broke when invited to the cinema on Thursday, perhaps to use it to generate more money like the children who invest in sweets or stationery to sell at school. And when the child runs out of money and is suddenly invited out, there should, at least initially, be the opportunity to earn more by doing something to help, by earning more money. Money gives parents some leverage.

C] Pocket money is for spending. Before deciding on an appropriate amount of money for a child of this age, discuss what the money is expected to buy. With seven year olds, it should perhaps cover special pencils or small toys or magazines, older children should perhaps be expected to buy special cosmetics or hair products, or perhaps a trip to the cinema. Discuss what the money should pay for and then allow the child to buy what he likes. If he wants to spend it all on three bars of chocolate this week, so be it – he will have no money left later when he reeaally wants something else, and next week might be a little more careful. Some children spend, others save, and a few wise ones save their own money and persuade people who love them to give them the sweets or hair-slides. If you want your child to save his pocket-money, this is not really pocket-money; it’s possible to encourage saving by offering to double what the child has saved towards the holidays or a special toy, but the child should be saving for themselves, it is unreasonable to give £x and then say ‘save half’.

D] If your child commits some awful crime such as breaking something deliberately that you feel he should pay for, or you feel he should be fined for, say, not coming home on time, then it is far more effective to take half his pocket money away for twice as long than to take all his money away until the fine is paid off. In this way, the child has an extended reminder of the problem, and no excuse to steal because he can’t meet his commitments.

E] Never be tempted to give the child his pocket money early however good he promises to be or however much homework he promises to do. We have all met workmen who have taken the payment and then left the job unfinished. You work, you get paid.

F] Your child’s job is to behave as a child, that means going to school as expected, helping in the house nicely, being pleasant to siblings and adults. If he chooses not to comply with these expectations, then he will be paid less. You might have an arrangement where you give him £x per week, with the chance to earn £y for every day that he does what is required and a bonus if he achieves every day. This gives the child a chance to earn £x + £y+y+y+y+y +bonus and encourages him to understand that he has obligations within the family too. Curiously, many young people, teenagers, are better with money than their parents. The present emphasis on money and the credit crunch, means that adolescents have either been taught or have absorbed the importance of Saving and Not Using credit cards. I have heard any number of teenagers saying things like ‘Do you need that?’ and ‘You have already got some of those’ in a distinctly patronising way…. Equally, of course, there are a huge number of slightly older young people who have left University with massive debts, £20k and more, and are absolutely feckless about borrowing more.

I wonder if this is what time, society and the Press etc is doing – as more and more youngish people leave university with huge debts, are those slightly younger pulling in their horns and being cautious? or throwing caution to the wind – I can’t afford anything at all, so I might as well buy what I want!

Certainly, as increasing numbers of adults are having to do without all sorts of things including food, and children are hearing more and more discussions about financial matters, the situation will change. Society seems able to accommodate young people who think nothing of paying for a coffee in a Starbucks or Costa alongside others who are only eating at teatime.

Children need to learn to manage financially; small children are totally dependent on their parents for money. The expectation is that adults will manage for themselves. Money is a curious concept – although we all agree that the most important things in life can not be bought, almost everything requires an understanding of economic worth. Very young children assume that money is in never-ending supply. Hence the exasperated five year old who suggests that you ‘just go and get some more from the machine!’ if you say you have run out of cash. Older children have little idea of the expense of everyday living and tend to prioritise their wishes over the needs of the household; most children don’t need to consider how electricity or food or clothes are paid for. It is a good idea to try and teach children financial responsibility when it doesn’t matter, when they have no formal responsibilities. Indeed younger children enjoy determining how much of their income they can spend on sweets or presents or a hair product. You can enable a financial maturity through pocket money and an increasing responsibility.