Parents Pocket Money Guide

Parents Pocket Money Guide

What this guide is about We know that around 6 or 7 years of age is when children are learning and understanding more about saving be it saving for a game, or helping the environment by saving energy. Research tells us that this is also the most popular age to start giving pocket money. In response to that information and feedback from our customers we ve put together two helpful Pocket Money Guides one for parents and one for children. Pocket Money is a great way to help children learn how to handle money sensibly an important life skill! There s also our fun Pocket Money Petz tool which helps children learn about how money has to be earnt and saving up for something really cool. How children learn about money How to give pocket money Setting rules Paid and unpaid tasks Using pocket money wisely Spending and saving Helping children to save Savings Pocket money: things to think about Other forms of money Do s and don ts How much should I give? Pocket money record 1

How children learn about money Children need help in learning to understand the concept of money. It means understanding what money is, where it comes from, and where it goes. It means learning how to look after money, and how to budget and spend it. It means making personal choices, and knowing that there are moral issues about money. Children learn about money in stages. Ages 5-7 years learn about Ages 8-11 years learn about What money is the coins and notes that we use different coins and notes in different countries other forms of money: cheques, credit and debit cards, gift tokens credit Where money comes from both regular and unpredictable sources of money how we get money from work benefit payments if there is no work pensions and where these come from Where money goes choices of what to spend money on household expenses household expenses and regular financial commitments tax and pensions being deducted from earnings Looking after money how to keep money safe keeping a record of money putting money into an account keeping their own financial records bank statements and savings books Spending money paying for things we buy other ways of spending money saving different ways of saving and planning ahead Risks and returns losing money or having it stolen the concept of insurance savings and interest Personal choices the value of money what you buy is more important than what you spend balancing needs and wants good and bad debt best buys value for money Ethics of money the consequences of having more or less money different living standards living standards in different times and places the ethics of money This table shows the financial capability guidelines for personal finance education from the Department for Children, Schools and Families. 2

How to give pocket money Why give pocket money? Pocket money teaches children the basics of budgeting, helping them learn to manage money while they are still young and you can guide them. Giving pocket money can be a valuable way of teaching your child good money habits and financial responsibility. It s also a great way to introduce the importance of saving. When to start The most common age to start giving pocket money is around six years old, when your child is at school and can begin to think sensibly about money. There is no point in giving money to a child who cannot count or does not know what money is for. However, you know your child best so it will be when you judge that your child is sufficiently mature to handle money How often It s best to have a regular weekly pocket money day. Some parent s like to give pocket money when the child has carried out agreed tasks such as making their bed or laying the table, others like to pay a regular amount, no strings attached. How much to give Talk to friends and neighbours about how much pocket money local children get. Look at the table on page 13 to see how much children get on average in the UK. If your child also gets regular pocket money from a grandparent or aunt or uncle, take that into consideration. What the pocket money is for Set out the rules clearly for what the pocket money is for. For example, some may be for immediate spending on comics or sweets or saving for a small toy, some for saving towards larger items or family birthdays or holidays, some for long-term saving. Link to Setting rules When to increase pocket money An obvious time is at each birthday. If your child asks for an increase, you could challenge them to present an argued case for it, including records of what they have spent and budgeting plans for the future. Link to How much should I give? 3

Setting rules Fair play Keep to your side of the bargain and give pocket money regularly on a set day each week. Don t give in and buy something for them that you have expected them to save for. And don t give money as a bribe! Monitor the pocket money that relatives give to make sure your child doesn t get too much. Working for pocket money Some children earn some or all of their pocket money by doing household chores. This feels like a good way of learning about the value of money. But a word of caution: a survey about pocket money showed that children who earned pocket money were less likely to save it. They saw it as earned cash that they could spend immediately. So earning money may not teach children to save. One way of handling this is to give just part of pocket money as earnings. Or to reserve earnings as a way of topping up pocket money when your child is saving for something special. Take a look at our Pocket Money Petz tool where your child can earn more pocket money You may want to sort out the household chores into those you don t pay for and those you do there is no point in paying children to do what you expect them to do anyway! Link to Do s and don t s You may want to hold some pocket money back if your child does not do their share of ordinary household chores. What pocket money is not for Make it clear what you will buy, such as clothes, books, things for school, outings. Also make it clear what their pocket money is for. 4

Paid and unpaid tasks Here are some possible ways of sorting out paid and unpaid household tasks. Chores done for free Chores that earn pocket money Making own bed Putting clean washing away Helping with washing up Filling and emptying the dishwasher Tidying own room Emptying bins Setting and clearing the table Sorting out equipment for school Preparing packed lunches Feeding the cat Homework Making beds for others Cleaning the car Doing all the washing up Sweeping/vacuuming the floor Raking up the leaves Walking the dog Gardening A big tidy-up of cupboards and rooms Cleaning windows Helping with decorating Cleaning shoes Watering the houseplants Cleaning out the pet s cage 5

Using pocket money wisely Helping children use their pocket money wisely Unless you live within easy distance of shops, your child will be dependent on you to take them somewhere to spend their money. So you do have a lot of control over their purchases. Sometimes children are so keen to spend their money that they buy almost the first thing they see, so make sure they have opportunities to spend wisely, and discuss with them the pros and cons of particular buys. Discuss wants versus needs Children often do not know the difference between what they want and what they need. We can t have everything we want, so we have to make choices. For adults, we have to sort out needs first (such as food, rent, clothes, warmth), and then think about wants (fashion, holidays, entertainment). It is important that your child understands that you have to make careful spending choices. Explain where your money comes from, and that you have a limited supply of money that has to cover everything. Explain also about the household expenses, and how you make priorities about what you spend money on. Helping towards approved items You can encourage your child to spend their money on something you particularly approve of by agreeing to pay for half of it. Or you may offer to match or double the money they have saved towards a large item such as a holiday, once they have reached a certain savings target. 6

Spending and saving When children are little and they first get money, they may spend it as quickly as they receive it. Help them think about saving up to buy something worthwhile. Other children may not know what to do with their money, and leave it around in their bedroom, with the risk that it may get lost. Help these children think about keeping their money in a safe place. Value for money Things we buy with our money have different values and may not always be worth what we spend on them. Also, there are differences in what people are prepared to pay for the things they need or want (as auctions show). It takes children time to realise the value of items and experiences. It is important that your child has opportunities to make choices so that they begin to develop their own sense of what things are worth. Shopping around is a good skill to learn, finding out how to ask the right questions, collecting details, and getting advice from the right source. When you go shopping, encourage your child to look at the price tags. Compare prices with them and discuss value for money. Discussing budgeting In a nutshell, children need to learn money what it can and can t buy, how it doesn t grow on trees, and why you need to be careful about when and where you spend it. Simple lessons learned in a simple way, at a simple time in life. As adults we need to plan how we will spend our money. Keeping track of what we spend allows us to see whether we are sticking to our budgets. To do this we keep receipts, bank statements, credit card vouchers, and so on. We also compare prices of things we want to buy to decide on value for money. Help your child keep a record of what they plan to spend their pocket money by downloading pages from their Pocket Money Guide. Include short-term, medium-term and long-term savings, and any donations they plan to make. 7

Helping children to save Things to think about You can encourage your child to save right from the start. If necessary, help them find something worthwhile to save for. Spend, Save, and Donate It s important to explain to children that living within a budget can sometimes mean deciding to get one item or another and that when funds are limited, you can t always have everything right away sometimes you have to save up for things that you d like to buy. A very simple way to help children learn about saving is by using four jars or moneyboxes: Label one jar Spend (the money in this jar can be spent on anything they wish) Label another Save/short term (money for toys, cinema tickets etc) Label another Save/long term (maybe a bicycle, games console, large toys, car or education) Label the remaining jar Donate (it is important to be socially responsible and you can begin early by encouraging your child to donate small amounts) You ll need to explain to your child what the jars are for and help them decide how to split their pocket money between them. 8

Savings Short-term saving If your child wants to buy something they cannot afford, such as toys, CDs or cinema tickets, encourage them to save up before they buy it, rather than lending them the money. They can work out how much to put aside each week, and how long it will take them. For a small item it may only take them two or three weeks. Medium-term saving Encourage your child to save for family presents. They can save spending money for holidays, and also for much larger items for themselves such as a bicycle, a video gaming system, or special clothes. You could encourage the saving habit by agreeing to match the amount they have saved, or give 5 for every 20 saved. Or you could work out a percentage increase to give them the idea of interest earned. When they ve saved for a larger item, let them hand over the money themselves. This will give them a sense of achievement. Long-term saving With young children you will need to explain the importance of saving over a long time for their needs in the future. Talk to them about how the money is borrowed by the Bank or the Building Society. It is, of course, important to use an organisation that is safe and sound. The financial organisation that borrows your money pays you a fee, which is called interest. Work together to find out how much the money they have saved will grow over time. As an adult, saving up to buy something is usually better money management than buying on credit. This is because you get the interest on the savings, rather than paying out the interest on your borrowing. The longer you leave money in, the more interest you gain. Grandparents and other relatives may want to pay into a savings account, either on an occasional basis, or with a regular standing order. Make sure children know this is happening, and that they can find out how the savings in their account are growing. 9

Pocket money: things to think about When to pay pocket money Pay pocket money on the same day each week. You may also want to give special pocket money for regular events such as birthdays and fete days, and for particular events such as the tooth fairy. Keeping money safe When you start paying pocket money, you will give cash. Your child needs to learn how to keep money safe, so provide a moneybox, preferably with a lock. A box that allows you to sort out the coins is a good way of helping your child count money efficiently. You may want to provide more than one moneybox, one for current spending and one for each of the different kinds of savings. Your child can even make their own moneybox. Looking after money and knowing how to keep it safe are important skills for children to learn. Counting money allows them to check that none is missing. As they get older, children begin to learn that money can be looked after safely by financial institutions, and that they can see a record of their money in a savings book and in an annual statement. 10

Other forms of money Non-cash forms of money Your child will sometimes receive book tokens and gift tokens as presents. This is an early introduction to a form of money that is not cash. As adults we have a variety of ways of paying for what we need and want: vouchers, postal orders, standing orders, cheques, debit cards, credit cards, store cards Talk to your child about all these forms of money. Credit Children will know about various ways in which people can buy things they want using credit. They may have come across catalogues, credit cards and hire purchase. They may not realise that things usually cost more this way because we have to pay interest on what we have borrowed, or because the goods cost more. It s worth comparing prices in shops and catalogues to see which cost more. And to consider the interest you pay on credit card loans if you don t pay off all that you owe each month. Bookkeeping: recording ins and outs Talk about checking your own bank statements to ensure that the bank has not made a mistake, and the importance of keeping to your budget. Your child can make their own financial records by downloading charts from their on-line guide to Pocket Money and recording the money they receive in pocket money and in gifts, and alongside this recording how much they have spent. They can also record money in their savings account, and the annual interest that this earns them. 11

Do s and don ts Do s and don ts We ve put together some do s and don ts that we think may be helpful. You don t have to follow them you may have your own rules around pocket money in your house that work better. Do s Don ts Do give pocket money on the same day each week Do let your child know what their pocket money is for Do expect your child to make spending mistakes, and sympathise rather than criticise them when this happens Do give praise when your child manages their money well Do talk about how you manage your family finances, including any mistakes you make Do show your child how to keep pocket money records Don t link pocket money with school performance Don t give advances or loans Don t expect your child to earn all their pocket money Don t worry if your child makes unwise purchases from time to time Don t worry if your child spends their money on things you consider of little value; they matter to the child Don t expect your child to manage their money well immediately 12

How much should I give? Average pocket money allowances in the UK According to a survey conducted in 2011 the average amounts of pocket money given by parents depending on the age of their child: Age Weekly pocket money 8 years old 4.44 per week 9 years old 5.22 per week 10 years old 4.81 per week 11 years old 5.65 per week 12 years old 6.60 per week 13 years old 6.68 per week 14 years old 7.61 per week 15 years old 8.38 per week What children spend their money on in the UK According to the responses from mums and dads we ve spoken to in the past, the most popular items that children spend their money on were: Sweets, crisps and ice-creams Comics and magazines Where children keep their pocket money 50% of children keep their money in a moneybox. Children and savings A third of children save some of their money each week. The most popular items to save for are games consoles, games for the console, clothes, jewellery, trainers, football and other sports stuff, art materials, mobile phones and holidays. When do you increase your child s pocket money? One in four children get an increase in their pocket money once a year. Some have an increase on their birthday, others during the summer holidays. 13

Pocket money record Your child could keep a weekly record of the money they get given, what they spend it on and how much they save. Here is an example: Date: 31st January 2012 Money I received this week Pocket money 4 Money presents 3 Money earned 50p Total 7.50 Money I spent this week Sweets and crisps 2 Comic 1 Donation 25p Total 3.25 Money I saved this week Saving for CD 1.25 Saving for holiday 2 Long-term savings 1 Total 4.25 HSE-GD-0078-0214 14