Parents pocket money guide


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Parents pocket money guide

  1. 1. Parents’Pocket Money Guide
  2. 2. What this guide is aboutWe know that around 6 or 7 years of age is when children are learning andunderstanding more about saving – be it saving for a game, or helping the environmentby saving energy. Research tells us that this is also the most popular age to startgiving pocket money.In response to that information and feedback from our customers we’ve puttogether 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 howmoney has to be ‘earnt’ and saving up for something really cool.How children learn about money SavingsHow to give pocket money Pocket money: things to think aboutSetting rules Other forms of moneyPaid and unpaid tasks Do’s and don’tsUsing pocket money wisely How much should I give?Spending and saving Pocket money recordHelping children to save 1
  3. 3. 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 8-11 years learn about Ages 5-7 years learn about • the coins and notes that we use • other forms of money: cheques,What money is • different coins and notes in credit and debit cards, gift tokens different countries • credit • how we get money from workWhere money • both regular and unpredictable • benefit payments if there is no workcomes from sources of money • pensions and where these come from • household expenses and regular • choices of what to spend financial commitmentsWhere money goes money on • tax and pensions being deducted • household expenses from earnings • putting money into an account • how to keep money safeLooking after money • keeping their own financial records • keeping a record of money • bank statements and savings books • saving • paying for things we buySpending money • different ways of saving and • other ways of spending money planning ahead • the beginnings of insuranceRisks and returns • losing money or having it stolen • savings and interest • balancing needs and wants • the value of money • good and bad debtPersonal choices • what you buy is more important • best buys than what you spend • value for money • the consequences of having • living standards in different timesEthics of money more or less money and places • different living standards • the ethics of money This table shows the financial capability guidelines for personal finance education from the Department for Children, Schools and Families. 2
  4. 4. How to give pocket moneyWhy give pocket money?Pocket money teaches children the basics of budgeting, helping them learn to managemoney while they are still young and you can guide them. Giving pocket money can bea 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 startThe most common age to start giving pocket money is around six years old, whenyour child is at school and can begin to think sensibly about money. There is nopoint in giving money to a child who cannot count or does not know what money isfor. However, you know your child best so it will be when you judge that your child issufficiently mature to handle moneyHow oftenIt’s best to have a regular weeklypocket money day. Some parent’slike to give pocket money when thechild has carried out agreed taskssuch as making their bed or layingthe table, others like to pay a regularamount, no strings attached.How much to giveTalk to friends and neighbours abouthow much pocket money localchildren get. Look at the table onpage 13 to see how much childrenget on average in the UK. If yourchild also gets regular pocket moneyfrom a grandparent or aunt or uncle,take that into consideration.What the pocket money is forSet out the rules clearly for what the pocket money is for. For example, some may befor immediate spending on comics or sweets or saving for a small toy, some for savingtowards larger items or family birthdays or holidays, some for long-term saving.Link to Setting rulesWhen to increase pocket moneyAn obvious time is at each birthday. If your child asks for an increase, you could challengethem to present an argued case for it, including records of what they have spent andbudgeting plans for the future. Link to How much should I give? 3
  5. 5. Setting rulesFair playKeep to your side of the bargain and give pocket money regularly on a set day eachweek. Don’t give in and buy something for them that you have expected them to savefor. And don’t give money as a bribe! Monitor the pocket money that relatives give tomake sure your child doesn’t get too much.Working for pocket moneySome 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 wereless 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 givejust part of pocket money as earnings. Or to reserve earnings as a way of toppingup pocket money when your child is saving for something special. Take a look at ourPocket Money Petz tool where your child can earn more pocket moneyYou may want to sort out the household chores into those you don’t pay for and thoseyou do – there is no point in paying children to do what you expect them to do anyway!Link to Do’s and don’t’sYou may want to hold some pocket money back if your child does not do their share ofordinary household chores.What pocket money is not forMake 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
  6. 6. Paid and unpaid tasks Here are some possible ways of sorting out paid and unpaid household tasks.Chores done for free money Chores that earn pocket money• Making own bed • Making beds for others• Putting clean washing away • Cleaning the car• Helping with washing up • Doing all the washing up• Filling and emptying the dishwasher • Sweeping/vacuuming the floor• Tidying own room • Raking up the leaves• Emptying bins • Walking the dog• Setting and clearing the table • Gardening • A big tidy-up of cupboards and rooms• Sorting out equipment for school • Cleaning windows• Preparing packed lunches • Helping with decorating• Feeding the cat • Cleaning shoes• Homework • Watering the houseplants • Cleaning out the pet’s cage 5
  7. 7. Using pocket money wiselyHelping children use their pocket money wiselyUnless you live within easy distance of shops, your child will be dependent on you totake them somewhere to spend their money. So you do have a lot of control over theirpurchases. Sometimes children are so keen to spend their money that they buy almostthe first thing they see, so make sure they have opportunities to spend wisely, anddiscuss 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 tosort 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 youhave to make careful spending choices. Explain where your money comes from, andthat you have a limited supply of money that has to cover everything. Explain also aboutthe household expenses, and how you make priorities about what you spend money on.Helping towards approved itemsYou can encourage your child to spend their money on something you particularlyapprove of by agreeing to pay for half of it. Or you may offer to match or double themoney they have saved towards a large item such as a holiday, once they havereached a certain savings target. 6
  8. 8. Spending and savingWhen children are little and they first get money, they may spend it as quickly as theyreceive it. Help them think about saving up to buy something worthwhile. Other childrenmay not know what to do with their money, and leave it around in their bedroom, withthe risk that it may get lost. Help these children think about keeping their money in asafe place.Value for moneyThings we buy with our money have different values and may not always be worthwhat we spend on them. Also, there are differences in what people are prepared to payfor the things they need or want (as auctions show). It takes children time to realisethe value of items and experiences. It is important that your child has opportunities tomake 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 discussvalue for money.Discussing budgetingIn a nutshell, children need to learn money -- what it can and can’t buy, how it doesn’tgrow 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 wespend allows us to see whether we are sticking to our budgets. To do this we keepreceipts, bank statements, credit card vouchers, and so on. We also compare pricesof things we want to buy to decide on value for money. Help your child keep a recordof what they plan to spend their pocket money by downloading pages from theirPocket Money Guide. Include short-term, medium-term and long-term savings, andany donations they plan to make. 7
  9. 9. Helping children to saveThings to think aboutYou can encourage your child to save right from the start. If necessary, help them findsomething worthwhile to save for.Spend, Save, and DonateIt’s important to explain to children that living within a budget can sometimes meandeciding to get one item or another and that when funds are limited, you can’t alwayshave everything right away – sometimes you have to save up for things that you’dlike 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 tosplit their pocket money between them. 8
  10. 10. SavingsShort-term savingIf your child wants to buy something they cannot afford, such as toys, CDs or cinematickets, encourage them to save up before they buy it, rather than lending them themoney. They can work out how much to put aside each week, and how long it will takethem. For a small item it may only take them two or three weeks.Medium-term savingEncourage your child to save for familypresents. They can save spendingmoney for holidays, and also for muchlarger items for themselves such asa bicycle, a video gaming system, orspecial clothes. You could encouragethe saving habit by agreeing to matchthe amount they have saved, or give£5 for every £20 saved. Or you couldwork out a percentage increase togive them the idea of interest earned.When they’ve saved for a largeritem, let them hand over the moneythemselves. This will give them asense of achievement.Long-term savingWith young children you will need toexplain the importance of saving overa 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 anorganisation that is safe and sound. The financial organisation that ‘borrows’ yourmoney pays you a fee, which is called ‘interest’. Work together to find out howmuch the money they have saved will grow over time. As an adult, saving up tobuy something is usually better money management than buying on credit. This isbecause you get the interest on the savings, rather than paying out the interest on yourborrowing. The longer you leave money in, the more interest you gain.Grandparents and other relatives may want to pay into a savings account, either onan occasional basis, or with a regular standing order. Make sure children know this ishappening, and that they can find out how the savings in their account are growing. 9
  11. 11. Pocket money:things to think aboutWhen to pay pocket moneyPay pocket money on the same day each week. You may also want to give specialpocket money for regular events such as birthdays and fete days, and for particularevents such as the ‘tooth fairy’.Keeping money safeWhen you start paying pocket money, you will give cash. Your child needs to learnhow to keep money safe, so provide a moneybox, preferably with a lock. A box thatallows you to sort out the coins is a good way of helping your child count moneyefficiently. You may want to provide more than one moneybox, one for currentspending and one for each of the different kinds of savings. Your child can evenmake their own moneybox.Looking after money and knowing how to keep it safe are important skills for childrento learn. Counting money allows them to check that none is missing. As they getolder, children begin to learn that money can be looked after safely by financialinstitutions, and that they can see a record of their money in a savings book andin an annual statement. 10
  12. 12. Other forms of moneyNon-cash forms of moneyYour child will sometimes receive book tokens and gift tokens as presents. This is anearly introduction to a form of money that is not cash. As adults we have a variety ofways 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 theseforms of money.CreditChildren will know about various ways in which people can buy things they want usingcredit. They may have come across catalogues, credit cards and hire purchase. Theymay not realise that things usually cost more this way because we have to pay intereston 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 toconsider the interest you pay on credit card loans if you don’t pay off all that you oweeach month.Bookkeeping: recording ins and outsTalk about checking your own bank statements to ensure that the bank has not madea mistake, and the importance of keeping to your budget. Your child can make theirown financial records by downloading charts from their on-line guide to Pocket Moneyand recording the money they receive in pocket money and in gifts, and alongside thisrecording how much they have spent. They can also record money in their savingsaccount, and the annual interest that this earns them. 11
  13. 13. Do’s and don’tsDo’s and don’tsWe’ve put together some do’s and don’ts that we think may be helpful. You don’t haveto follow them – you may have your own rules around pocket money in your housethat work better.Do’s • 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 recordsDon’ts • 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
  14. 14. How much should I give?Average pocket money allowances in the UKWe asked Mums and Dads throughout the UK about pocket money, how much theygive their children and what they spend it on.Here are the average amounts of pocket money given by parents depending on theage of their child: Age Weekly pocket money 5 1.48 6 1.64 7 2.04 8 1.98 9 2.60 10 2.70 11 2.44 12 3.32 13 3.43 14 4.27 15 5.66What children spend their money on in the UKAccording to the responses from the mum and dads we spoke to the most popularitems that children spent their pocket money on were: • Sweets, crisps and ice-creams • Comics and magazinesWhere children keep their pocket money50% of children keep their money in a moneybox.Children and savingsA 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, Pokemon and Pogs cards, Go Go collectible figures, footballand 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.We also asked them about how much the tooth fairy leaves for their children.The average rate for the tooth fairy is now £1.15. 13
  15. 15. Pocket money recordYour child could keep a weekly record of the money they get given, what they spend iton and how much they save.Here is an example: Date: 31st January 2009 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 14