There really are no hard and fast pocket money rules that parents and kids everywhere should follow. Your family’s pocket money rules will depend on the preferences and needs of your own particular family. However, it’s generally a good idea for kids to have some sort of pocket money, even from as young of an age as four or five. Having a their own money to spend allows children to understand spending and saving, and the value of a dollar.
Although there aren’t set rules, here are some things your family should think about when it comes to pocket money.
Teach Kids to Pay Themselves First
The SEC has a great program in place at the moment meant to help teach parents and kids about the basics of money, and one of its first allowance and pocket money rules for kids is to teach them to pay themselves first. You might want to require that your children automatically take a certain percentage of their pocket money to put into a savings account or even just a piggy bank. This will encourage kids to get into the habit of saving, even if it’s just a little at a time.
Make Pocket Money Appropriate to Age
Whether you have your children work for their pocket money through chores or not, you need to make sure that the amount of money they have makes sense relative to their ages. Not only are younger kids more likely to lose money, but they also have fewer expenses than older children, who might want to take the bus on their own or spend money on individual lunch items in the school cafeteria. Age appropriate amounts of pocket money are totally up to you as the parent, and you may need to experiment a little with the amount of money you let your child handle on a regular basis to see what works best.
Start Using Pocket Money Early
Children as young as four or five are old enough to start learning about the value of a dollar, even if they only get a dollar or two a week. As soon as a child is old enough to understand that you need money to purchase things from stores and can comprehend that money is finite and can run out, they’re old enough to start getting or earning pocket money so they can learn these lessons first hand.
Show Them How to Use Pocket Money
These days, it’s become very difficult for some kids to learn that money is a finite object because mom and dad are always swiping plastic at the store. It’s healthy for your family to see you spending cash, which looks and feels more limited and more real. Consider using cash for grocery purchases or other everyday purchases that your children often see you make, and they’ll be quicker to learn the basics of money management.
Let Kids Make Their Own Mistakes
While you are, of course, able to set some ground rules for pocket money – like saying that your kids can’t buy candy any time they want it because you want to protect their health – it’s a good idea to let them make mistakes. If your child, for instance, wants to wipe out his savings account to buy a toy that you know he’ll only be interested in for a few weeks, let him do it once or twice. Humans learn by making mistakes, and your children will understand how to manage money better if they make mistakes and suffer the consequences.
Keep Pocket Money in Cash Form Until Kids Are Older
Younger children certainly don’t need to be swiping plastic when they’re spending pocket money, but older teenagers may benefit from using a debit or credit card. Debit cards can help them learn about balancing a checkbook, and they may at some point make the mistake of overdrafting an account, which is expensive and embarrassing. But it’s better that they learn this lesson now than when they have real bills to pay in a few years.
Credit cards for kids under eighteen are pretty controversial, but they may be helpful for building a credit score as well as responsibility. If you do decide to allow your teenager to use a credit card for some of his or her spending, set very clear limits. Also, only allow a credit card with a very low limit of well under $1,000. As a parent, it can be difficult to watch your child use a credit card unwisely, but, again, it may be helpful in the long run to allow them to make mistakes, such as racking up more debt than they can pay in a month. They’ll quickly learn the difficulties of paying interest. Just make sure you always have access to their spending records so that you can curb bad habits before they become huge problems.