The importance of giving pocket money to children

The use of pocket money

Children may view pocket money as a gift rather than something earned, and many parents attach no conditions to receiving an allowance. However, pocket money is an essential first step in teaching children to manage money, and correctly value their finances.

We consider the benefits of giving pocket money to children, and some methods for teaching them to make wise money choices later in life.

Tip: Teach your children about delayed gratification by means of an investment product such as unit trusts. Learn more now.

Why teach children about money? 

Although children may think about much less weighty matters, learning about money management has significant advantages, says John Manyike, head of financial education at Old Mutual.

Because many parents have not been educated themselves about money, Manyike asserts, few children are fortunate enough to have been taught these skills.

“Financial education was not traditionally in the school curriculum, and money was frequently a taboo subject at home,” he says.

“There has been some improvement over the past couple of decades. However, we remain a credit-hungry, over-indebted society because managing money has largely been about trial and error.”

Gareth Collier, a certified financial planner and director of Crue Invest, says childhood lessons are critical for forming responsible adult financial behaviour.

“We are constantly bombarded with advertisements,” Collier says. “If kids don’t understand the consequences of spending all their money on the first thing they see, and thus being denied something else they may want, they will have trouble making wise decisions later on in life,” he cautions.

“It’s good to stand back and let your children struggle a bit. It’s hard to watch, but it’s important.”

Pocket money provides valuable lessons

Collier says giving children pocket money is a tried and tested technique that works well - provided it is done with intention.

“Teaching children about money is often about teaching delayed gratification. When too much comes too easily and quickly, children will expect the same of the wider world when they grow up.”

Manyike agrees. “If you’re just handing out R100 on a Friday, and it’s all gone on Saturday, you’re not doing your child any favours,” he says.

“Rather guide your child in a discussion about spending decisions. You may want this, but what else could you get? What will it take to get that item, which costs more than R100? How long would you need to save for it?”

Finally, Manyike says giving a child money to buy small things, such as sweets or ice cream, teaches them nothing unless they learn that money can be scarce.

“One of my favourite examples is comparing money to a small blanket. You must decide whether to cover your head or your legs - you can’t cover both. The lesson is that you must sacrifice something to get something,” he says.

Assigning chores in exchange for pocket money can illustrate this point. “Not everything a child does in the house has to be paid for, but you can identify chores that will reap rewards.”

Teach broader financial concepts

Money can be used to teach broader concepts, but in a practical rather than an abstract way, notes Manyike.

“You don’t have to spend money just because it is there. Calculate how much you spend on your child’s takeaway lunch and show them how much the family can save by packing a lunchbox every day.

“If you spend R25 daily, that’s R500 a month and R6,000 a year. Over 20 years, that amounts to R120,000.”

Manyike says parents should not underestimate the relationship between money management and mathematical literacy. “When children learn to divide and multiply, you can show them how this works with money.”

Collier says giving children pocket money provides an opportunity to share financial knowledge – but parents should be clear on concepts and principles.

Set clear ground rules in the home 

As all families are different, you will need to decide what works for your family, and how much money you can afford to give a child. Having set out an amount, it’s important to follow through with your promises.

“Make your expectations clear and stick to them,” says Collier. “Some people expect their children to buy their personal toiletries out of their allowance, while others are happy to let their children spend the money on whatever they want.

“Discuss ground rules,” Collier continues. “If your children would rather forego brushing their teeth than buying toothpaste, rethink your approach. If they’re talented artists, let them budget for art supplies, as this can also teach them a valuable lesson.

Collier says different families have different money philosophies and approaches.

“Some children learn early on about their parents’ bond repayments, the cost of groceries, and how much tax the family pays. Some parents believe children should be shielded from these realities. However, as a parent, it is your responsibility to prepare your children for life in a sometimes-challenging world.”

Manyike says consistency is key. “Children observe and learn your behaviour, so don’t tell them to save if you’re splashing out,” he warns.

Collier agrees. “You can’t teach your children discipline if you’re not disciplined yourself.”

Tip: Did you know you can take out a retirement annuity for a child, which is the ultimate saving vehicle? Find out more.