Top Tips on paying Pocket Money to Kids
As a concept, pocket money seems simple.
Kids pitch in around the house and receive a weekly allowance in return. They can then use their earnings to purchase toys or canteen lunches.
But dig beneath the surface and you’ll find that pocket money, for all the lessons it teaches, is worth its weight in gold. As a financial literacy tool, it shouldn’t be underestimated.
As we become an increasingly cashless society, it’s more difficult than ever for kids to grasp the concept of money. Gone are the days of carefully counting out change at the checkout or depositing cash through a bank teller. These days, kids are much more likely to watch us tap-and-go as we whack it on plastic.
Though cards are convenient, they detract from the value of the physical currency –, especially from a child’s perspective. This is where pocket money, coupled with a bank account, becomes important.
Despite what kids might think, debit cards aren’t a magical and unlimited source of funds to draw from. They’re linked to a bank account, and any money sitting in this account has to be earned, spent and saved accordingly.
Setting kids up with a weekly allowance and their very own bank account is a great way to help them understand this link. Though money has become largely invisible, a bank account balance is anything but. Being able to watch it increase or decrease based on their spending is a powerful learning tool for kids.
There’s no hard and fast rule about when to start paying, but your child should have a basic understanding of money first. They should know the difference between dollars and cents and be familiar with the worth of each note or coin.
How to get set up
A good place to start is by opening a kids bank account. It’s worth starting off with both a transactional account as well as a savings one, so kids can separate their money. Most banks don’t charge account-keeping fees for kids accounts. The interest rates are typically higher as well (but keep in mind there is usually monthly criteria which will need to be met in order to receive the higher rate).
If you don’t feel your kid is ready for a bank account just yet, children’s banking apps such as Spriggy can be a great alternative. The app works like a regular online bank account but is designed especially for kids. It comes with a prepaid debit card attached and enables parents to track their child’s transactions and deposits.
How much to pay
There’s no one-size-fits-all amount; however, research by Finder shows that the eldest child receives around $12.90 per week, the second child around $9.58 and the youngest just $7.73 on average.
Keep in mind that how much you choose to give should also depend on your household budget and what you expect your child’s pocket money to cover. Older kids might be made to pay for “grown-up things” like their bus fare, mobile phone credit or school lunches. If this is the case, they might need a little more pocket money than kids who aren’t expected to pay for such items.
Lessons in saving
Once you’re ready to start paying, explain to your child they’ll receive a small amount of money each week. They can use it to purchase items at the shops, but part of it should also be put in their savings. To put it into perspective, a six-year-old kid transferring just $6 per week in a savings account with a rate of 2.80% will have saved close to $4,000 by the time they turn 18. No more having to rely on the bank of mum and dad!
At the end of the day, what matters most is that you’re leading by example. Kids readily look up to their parents and having a healthy and responsible attitude to money yourself will help to develop it within your child. Though the humble piggy bank is near-extinct, understanding digital currency is more important than ever for kids.