One of the best investments you can make in your children’s financial future is a really simple one:
Give them pocket money.
You might be tempted to:
- set them up with a Junior ISA.
- start investing on their behalf.
- teach them about investing.
And these might be good ideas, but the risk is trying to go into too much detail too soon.
A lot of money stuff is interesting only –
a) when we absolutely need to know it or
b) when it is actually relevant to our lives.
If you are a fan of learning through experience and learning from mistakes, nothing quite beats giving your children pocket money.
5 reasons giving children pocket money is great for their financial education
We started giving our children pocket money about 5 years ago when they were aged around 5 & 8. Here are some of the best things it has helped them to learn:
1. They learned how to negotiate an inflation linked increase
They noticed the cost of Lego had gone up.
“What used to cost £20 is £28 now.”
This led to a discussion about inflation which led to a request for an inflation based pocket money increase. They had to do the Maths to work out what the increase should be to get the increase.
They also started learning about how inflation can damage your financial situation if you don’t take steps to protect yourself.
I don’t always find it easy to ask for help so I’m pleased they learned how to ask for more and got a positive response.
2. It has helped them learn about their relationship with money
They have both been through stages of saving and stages of spending.
My son Ivan learned that if he spent all his money on small things, he wouldn’t be able to buy the bigger things he wanted.
My daughter Zoe has saved up a war chest that sometimes she is reluctant to spend. This gives us a chance to have the “money is for spending after all” chat.
3. They learned about how to get the most fun for each £1 spent
Ivan is 13 and eats a lot at the moment. He thinks buying food is a really good way to spend his money as he loves being able to buy a panini with a side order of chips.
Zoe is particularly interested in clothes. I asked her why and she said “I just like clothes.”
This goes against my usual line of “spending money on experiences brings more joy than spending money on things.” (Which of course is evidence backed. But humans don’t only rely on the evidence and I like that Zoe is finding her own way and thinking about the things that bring her some joy.
4. They get a chance to learn from mistakes
We all make mistakes with money.
We’ve talked about how they feel regret on a few purchases. How that’s part of learning and an inevitable part of life to some extent.
As long as we learn from our mistakes, then it’s just part of being a fallible human.
5. Money brings independence
Having money that you can:
- Spend
- Enjoy
- Save
is exciting for children. It teaches independence and I hope it helps them to see that it’s a good idea to have your own financial resources that you can use as you see fit.
As a parent, at times it has been useful to be able to say “I won’t be buying that, but you’ve got your own money that you can use to buy it if you want.”
What one of us thinks of as a “waste” might bring joy for someone else. Pocket money allows children to explore this idea through their own experiences.
Practicalities
In my experience the amount of pocket money doesn’t have to be large to get the benefits above. It’s about the experience, the conversations and the learning through doing.
You can get specialist debit cards aimed at children, but using the “spaces” feature in the Starling app gets the same effect without the membership fee. It allows them to have a space for their savings, which they can check on an app. It also gives them a debit card, which encourages independence (or increases the risk) depending on how you see it.
Thanks for reading – I’m Simon, I love helping people feel better about their financial lives.
If you have any financial questions you would like help with, please feel free to get in touch for a chat.