Pocket money – when to start and how to do it

Giving pocket money to children develops their self-confidence. By learning how to manage a budget, they become independent and improve their social relationships.

Indeed, every child is a little explorer from the start. With pocket money, parents empower their kids to explore and much more importantly give them the chance to improve their self-efficacy in connection with money. This kind of experience develops self-confidence and kids can learn more and more about finances.

Pocket money is the first step to financial literacy

“Money doesn’t grow on trees, you have to work for it”. Most parents use this sentence to teach kids the value of money, as a Credit Suisse research on more than 14,000 adults shows. 1Credit Suisse Pocket Money Study: Learning How to Manage Money Properly

Thus, it seems that most parents share Dave Ramsey’s argument that attitude to work is a big cornerstone of managing finances. 2Dave Ramsey – Why Attitude Is (Almost) Everything Clearly, pocket money is a central topic in family management. However, when to start and how much to give them?

When to start pocket money

Children learn to add up about when they start school. From that moment on, they can count money and see if they can afford a certain toy or snack. As a general indication, children begin to manage their own resources once they understand three basic rules:

  1. to buy things you need money
  2. to buy more expensive things you need more money
  3. once money has been spent on something, it cannot be spent on something else

The DJI (German Youth Institute) recommends starting to give pocket money already before the age of 6, obviously providing mounts proportionate to the child’s age.3DJI – Deutsches Jugendinstitut: TaschengeldAs kids grow up, money can be given with reduced frequency up to once a month, as if it was an actual monthly salary. On this last regard, researches indicate that the most suitable age to provide a “monthly salary” is 12 years old. Indeed, from this age kids can administrate long-term finances better and take on even more responsibility in managing the cost of their lives.

Finally, as children get older you can slowly teach them about more complex concepts such as borrowing and opportunity cost and start discussing longer-term financial management.

How often?

In the case of very young kids, it is recommended to pay pocket money weekly as they struggle managing longer times. Instead, from the age of 10, it is recommended to start doing it on a monthly basis. In fact, at this age children can begin spreading their resources over a longer period of time and learn to administer them with greater caution.

Finally, give money on a specific day, with a precise frequency, and do not deviate from it. In fact, regularity is fundamental for children’s ability to learn self-management.

Some tips for parents

  1. How much pocket money?
    First of all, a fundamental principle: how much money depends on family budget above all. If the income is low, it is important to explain it properly. In fact, kids need the right understanding of family resources to better comprehend the differences that might exist with peers.
    Furthermore, trust grows with age. Indeed, given that children must have the resources necessary to fulfil essential needs, money must be proportionate to the kid’s level of experience and to the degree of rust accumulated. Hence, proceed step by step. For example, start with a small amount for a year and then increase it in the following one.
  2. Empower kids’ decision-making and allow mistakes.
    Making mistakes in managing money is a fundamental step in children’s growth. If something, errors teach kids of missed opportunities.
    To this end, you shouldn’t ask back for money that was incorrectly spent. Of course, it is sometimes difficult, but you should avoid it. Even when your child begs you.
    Only when children understand the consequences of their actions can really learn to control their budget. After all, pocket money is an educational tool to teach just that.
  3. Set limits.
    Although you should leave decision-making autonomy to your children, it is also good to set limits within which let them operate freely. Indeed, you should establish what pocket money is intended for. It could be for personal wishes such as cinema or needs like the phone bill. You define the right boundaries depending on the context and the age so that your kid can decide how to spend but within clear ground rules.
  4. Avoid withholding money as a punishment. Indeed, researches show that it discourages children’s long-term saving attitude. 4Raisingchildren.net: Pocket MoneyMoneySuperMarket: Family finance – pocket money Instead, pay regularly and without being asked. In fact, to perform its educational functions, pocket money shouldn’t be seen by children as a “bonus” and should be paid regardless of behaviour.

Pocket money in digital age

When giving money to kids, parents often use cash. Yet, researches predict that by 2028 adults will use cash for purchasing only once in ten. 5Kevin Peachey – BBC News: How much pocket money should we give our kids? Indeed, the rest of the payments will happen digitally.

What is the consequence for our children? Will kids learn to manage money using an outdated tool? Clearly, parents must find a way to manage pocket money in the age of digital transactions, so as to guarantee kids adequate financial literacy.

Finny and its apps are here for exactly this purpose: teaching financial literacy in digital age!

Finny is the new digital piggy bank for kids with which families manage pocket money and much more! Developed around child-learning needs, Finny provides kids with financial literacy through fun.

At Fintune, we know very well that kids build their foundations already at the age of 3-6 years old. Also, we know that once kids master these foundational skills, then they are ready to master the digital world.

Hence, we created Finny exactly with this purpose: empower kids from 3-6 years old onwards to master the era of digital transactions.

Stay tuned with Fintune!

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