‘Pocket money discourages kids from saving’.
‘Don’t give your kids pocket money’.
‘Kids should work, not receive an allowance’.
It seems that everywhere you look these days, headlines are recommending that we forego the thoroughly British tradition of giving kids a set allowance each week. All the fuss can be attributed to a recent study by the Royal Economic Society of April, 2013, the most comprehensive one to date on the relationship between pocket money and saving.
6,000 Kids Can’t Be Wrong…
The study analysed data obtained from 6,000 children aged 11 to 15 in the years 1997, 2001 and 2005. The results were as follows:
- Some 22% ofall kids surveyed said they spend their money immediately, without saving a penny.
- Giving a child pocket money lowers the probability that the child will save; allowing them to obtain part-time work, on the other hand, increases the chances that they will save.
- Whether or not parents save does not influence the chances of their children being savers.
- Having saved as a child increases the probability of a child being a saver in adulthood by 18%.
Are We Reading Too Much into the Statistics?
Given the information gleaned from the study, it is difficult to see why the media has jumped to such a far-fetched conclusion (that parents should not give kids any pocket money at all). Only a quarter of kids given pocket money fail to save at all, yet the other three quarters seem to be doing just fine, suggesting that there is nothing wrong with a parenting style that focuses on rewarding good work.
Parents generally find the practice of giving pocket money to be of great use in encouraging children to do household chores. A recent study undertaken by online saving site, PKTMNY, reveals that the average amount of pocket money given is £6.17 per week for kids aged eight to 14, £3.90 for eight-year-olds, £6.54 for 10-year-olds and £7.88 for 12-year-olds. These amounts tend to be cumulative, comprising £1.50 for tidying up bedrooms, £1.06 for doing the washing up, £3.57 for taking care of pets, £2.30 for washing up, etc.
How Much is Too Much?
The amount parents decide to allocate to pocket money very much depends on their financial means and/or their respective ideas of what makes up a ‘fair amount’. The average amounts mentioned above may serve as a guideline but ultimately, parents should allocate the amount they are comfortable with. Perhaps the secret to good parenting lies in teaching children useful financial skills. These include:
- Signing children up to online savings sites instead of merely giving them cash payments: Some sites (such as PKTMNY) encourage parents to set up special accounts for their children and make regular automatic transfers to these accounts. Kids are assigned a special pre-paid card and pin number and parents get to decide where and how often they spend their money. Other sites (such as themint) provide tools such as a fun savings calculator, which teaches kids how to make budgets and create savings plans for particular items.
- Encouraging children to obtain part-time ‘employment’. Instead of paying kids to do the gardening at home, ask a friendly neighbour to ‘hire’ your child for a couple of small paid chores.
- Open a children’s ISA with them: These special accounts bestow holders with interesting tax advantages and entice kids with perks and presents.