10 Pocket Money Mistakes Parents Make
If you're confused about whether to give or not give pocket money, the short answer is yes to giving pocket money. But with an asterisk—terms and conditions apply.
By Aarthi Arun
When Prakash turned 7, his mother, Shubha, decides to give him pocket money every week. Prakash intends to save enough money to buy a train building set that he has been eyeing for a while. After the fourth week, the family goes shopping at a nearby mall. Against Shuba's advice to keep saving the money, Prakash takes all the money with him. He can't resist the colourful toys and candies in the mall and ends up spending his entire money on a whim. Once home, he eats the candies and plays with the new toys to his heart's content. After the novelty of the toys wears off, he looks at his pocket money sadly. Now, there is only some coins leftover from the shopping. It will be months before he can afford to buy his train set. And guess what? Even after two years of getting a regular allowance, Prakash still hasn't saved enough to buy his dream toy.
So, with all her good intentions, where did Shuba go wrong?
Before we delve into that, let's see why the habit of managing an allowance can be crucial for your child's future.
Is finance not your forte? Does the art of meticulously managing money elude you? Do words like compound interest, index fund, etc., sound like Latin to you? Well, it is the same for most of us. But, the world is developing at a breakneck pace, and economic turbulences abound. So, your child is better off if he has a positive relationship with his finance. You can help him by starting to give pocket money.
It is as straight forward as it can be -- regularly giving your child pocket money teaches finance to your child. When your child receives her weekly or monthly allowance, she will be able to learn the value of money, manage her money, and understand her financial responsibility. The best way to learn anything is through practice and experience. With pocket money, your child will have firsthand experience of managing her spending and saving some for later. In a study published by the Centre for Economic Psychology at the University of Bath, UK, children who received pocket money regularly were found to be more economically competent than their peers as adolescents. The authors argue that learning to manage pocket money is a practical approach to financial literacy.
Also, when you give pocket money to your child, it opens up an opportunity to talk about handling money. According to an article published in the journal Family Science Review by the University of Minnesota, students who grew up in families where finances were positively discussed had better financial competencies from a young age. In other words, when you talk about handling money and savings, your child will make better financial decisions in the future.
Another potential lesson from getting pocket money is delayed gratification. When your child saves her money for the future, she is resisting the urge to impulsively buy something and wait for a bigger reward at a later point of time.
Now that you know the importance of giving regular allowances, let's see some of the common mistakes which can hinder the benefits of giving pocket money.
Mistake#1: Giving more than you can afford
Before agreeing for the allowance, you should carefully consider your budget. If you agree to a higher amount, you may not be able to keep up with that. For instance, if you agree to pay your 10-year-old Rs. 500 every week, it will be Rs. 2000 per month. This is a substantial amount that can leave quite a hole in your wallet.
What you can do instead: You must estimate if you will be able to provide it in the long run. If you have more than one child, it warrants further calculation. Your child thrives in a consistent setting, so commit to an affordable amount and stick to the plan.
Mistake#2: Giving too little
As with giving too much, giving too little will not solve the purpose of managing finances. According to the above mentioned University of Minnesota study, the parents' negative relationship with money affected the child's financial responsibility in adolescence. If you give very little in the name of preparing your child for hardships in real life, it will be counter-effective.
What you can do instead: It is important to discuss your financial situation and provide an age-appropriate amount for your child. Also, you may have received only fives or tens in your childhood, but it may not be enough in the current economic situation. As a general rule, a young child should be able to buy small items like stationary and toys with his pocket money, and an older child must be able to afford a small outing with his friends.
Mistake#3: Not setting expectations and limits
A study published in BMJ Journals shows that children receiving pocket money are overweight or obese compared to the children who did not get any pocket money. If you don't set limits on using pocket money wisely, your child could end up using it for buying unhealthy snacks after school. With independence comes responsibility. So, don't forget to show your child how to make correct judgements.
What you can do instead:
- You can set certain ground rules on your child’s spending habits. Set rules on the things she is allowed to buy and the frequency of her shopping trips. Help your child to list the things she intends to buy with her pocket money. Then, ask her to review the list and strike off the things that may be unnecessary.
- Remember to pack enough lunch and healthy snacks for school. Set a limit on buying snacks as a treat, say, once a week.
- Take your child with you when you go shopping. Show her how you handle your shopping dilemmas. You may be eyeing a high-end brand art supplies. Let her see how you choose an inexpensive alternative and make it work for you.
Mistake#4: Not showing how to save
A major issue we all have with finance is not that of spending but saving. Don't pass on this habit to your child.
What you can do instead: Catch him young and show your child how to put away a part of his money as savings. Say, he is getting a hundred rupees every month. Encourage him to save at least thirty rupees for future use. Your child can use his savings at a later point for something he really wants or for donating to a cause he believes in.
Mistake#5: Having an ad-hoc schedule
It is essential to have a routine for pocket money and stick with it. Giving your child loose change here and there without a plan is not ideal. For one, your child can impulsively spend it. Secondly, she will not be able to learn to manage her finances well without a stable and reliable plan.
What you can do instead: Make a plan for your child’s pocket money after discussion with your child- how much, how frequently, and the do’s and don’t’s. With a proper plan, your child can have a consistent schedule for her payments. This would enable her to efficiently shape her spending and savings.
Mistake#6: Using pocket money as a reward
Your child gets an A grade or wins a competition, and you, the proud parent, shower him with some money. By doing this, you're using money as a reward. Sure, we all need money, but don't make it the only motivation.
What you can do instead: If you're overjoyed with your child's accomplishments and like to appreciate him, get a small gift. Better still, do some activity together or go to a special place. Use pocket money only for what it is -- a regular allowance you've agreed to pay your child for his own expenses.
Mistake#7: Using pocket money as a threat
As with reward, pocket money should not be used as a threat to reinforce good behaviour. Taking away your child's pocket money for her bad behaviour is a no-no.
What you can do instead: A positive parenting strategy with lots of loving guidance is the way to go to achieve that. Pocket money is not your discipline tool. As mentioned earlier, use pocket money only for what it is.
Mistake#8: Not teaching technology
Your preschooler can proudly store her pocket money in her cute piggy bank, but if you have an older child, open a bank account in his name. It's becoming increasingly rare to carry money, and most of us use our cards. It will be good practice for your child to start banking at an early age.
What you can do: You can take him to a bank to experience the process. At the same time, show him how to bank using your mobile device. Given how easy it is to shop with a click of a button, don't forget to instil responsibility. Your child can also explore finance apps for managing his pocket money.
Mistake#9: Using pocket money for other expenses
Your child's pocket money is her money, meant for her to handle her small expenses. Don't expect your child to cover her basic necessities like food, clothing, and school supplies with that. As a parent, that responsibility is on your shoulders. When the milkman is at your door, and you don't have time to run to the ATM, it is fine to borrow some money from your child. But, make sure to return it as soon as possible.
What you can do instead: When you're out shopping, don't expect your child to pitch in for common expenses. Always remember the rule: your child owns her pocket money. Never ever tell that it's your money!
Mistake#10: Micromanaging your child's spending
You want your child to make rational decisions, so you are constantly behind him. You direct and tell him what to do and what not to do. But, your well-meaning intentions may not work here.
What you can do instead: Set the ground rules and let your child make mistakes and learn from them. Did he spend all the money that he was saving to get a special gift for his sister? Be empathetic, but don't offer to buy one on his behalf. Let him have the opportunity to learn to manage his finances better.
I give my 9-year-old son some pocket money, and he is able to manage his money affairs independently. If he is talking about buying something special, I add in some extra money to cover it. I think my son has learnt the value of things through pocket money habits. Now, when he picks up something and sees the price tag, he knows if it is affordable for us or not.
Sri Murugan, Madurai
We don't give our 12-year-old any pocket money, but she does manage to save some money that we give her to buy food or stationery at school. When her grandmother came to visit, my daughter took her shopping and got her coffee and snacks with her saved money.
In a nutshell
- Giving pocket money to your child can lead to discussions about money, which in turn will help him understand finance better
- Some of the common mistakes that parents can avoid while giving pocket money are giving too much or too little, not following a schedule, not talking about responsible behaviour and controlling the child's spending too much
What you can do right away
- Start a pocket money habit if you've not already started it. Discuss with your child and agree on an appropriate amount each month and follow the plan
- Set mutually-agreed ground rules regarding the things he can buy
- If there’s something your child or teen really wants, incentivise them to save their pocket money by offering a savings match
- Give your child some space to take things in her own hands, make mistakes, and learn from them
About the author:
Written by Aarthi Arun on 11 March 2020.
Arun is a writer from Chennai, who currently calls Toronto her home. She has donned many hats from a photographer to a librarian to a software engineer, but she has learnt the most in the role of a mother. She loves long walks with her 6-year old, likes creating lego masterpieces, and reading adventurous stories with him.
About the expert:
Reviewed by Meghna Singhal, PhD on 11 March 2020.
Dr. Singhal is the Manager, Global Content Solutions at ParentCircle. She has a doctorate degree in clinical psychology from NIMHANS (Bangalore) and holds a post-doctorate in parenting from the University of Queensland (Australia).
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