Talking of money reminds me of this famous song by ABBA:

“I work all night, I work all day, to pay the bills I have to pay
Ain’t it sad
And still there never seems to be a single penny left for me
That’s too bad

Money, Money, Money, ain’t it funny? It’s a rich man’s world.”

Yes, money is important, as equally as money management is!

Pocket Money, as the name suggests, is nothing but money for the pocket…the dictionary meaning – a small amount of money given to a child by the parents, typically on a regular basis, suitable for minor expenses.

There were days, when kids were given piggy/kiddy banks with a hole to drop in coins and save money.

Pocket money is a child’s first experience to feel the feel of money and adding to it, of managing money. Few questions crop up when we talk about pocket money.

• Should pocket money be given?
• If yes, what is the right age to start this practice?
• Who defines this age?
• When is a child is ready to understand the concept of money management,and considered responsible enough to be given pocket money?
• Should the child learn to earn it or should it be given as an allowance?
• Is the child answerable to the parents for the money thus taken?
• What are the pros and cons of familiarizing children with pocket money?
• Does it help the child? What is the slab for it? How is it related to financial learning?

As many questions, as many answers…

It is the responsibility of parents to teach kids money management so that they develop the acumen of handling it wisely as they grow. Parents need to take an active role in imparting money management skills to children.

The right age for pocket money

As soon as a kid starts learning addition and subtraction, the child would love to have pocket money, at the same time, learn to make small purchases with it. It has been identified that by the age they reach seven, kids develop a penchant for money, and this stays with them a lifetime.  Schools give kids the task of selling raffle tickets and making money for shows. Even with such involvement, kids learn money management.

We as adults, at times, fail at money management. The fact remains that we had never been given pocket money. We give it to kids now who spend it on gifts and gadgets, cards and comics, pizzas and burgers, movies and magazines, whatever…but then, it introduces them to an entirely new financial world and also makes them feel important and independent, which goes a long way in building up the kids persona into an independent thinker, an investor, a financial analyst or even a perfect homemaker.

Money management

The understanding of the importance of money –

• How to earn it?
• Where to spend it?
• How to save it?
• How to account for it?

This learning strengthens and secures a child’s future.

Children need to learn money cycle. Pocket money helps the child in gaining financial literacy, which is as important as gaining academic knowledge.

Good financial skills

If we, as parents impart good financial skills to children from an early age, they will be better equipped to face the financial challenges of adulthood and learn healthy fiscal habits – earning, budgeting, forecasting, spending, accounting for and saving.

When a child is in the pre-teens, he/she might require parental guidance. The pocket money given need not be huge, just enough for the child to buy small things and keep a track of the money spent.

Teenage

This is a crucial jumpstart for the kids – A complete transition in their mental faculties. The right age to embark on learning responsible behavior – including money management – the art of how to use and save money. Financial literacy begins at this stage, and lasts through adulthood.

Involve children in discussions related to money – the bus fares, school fee, mobile recharges, etc.

Children learn by seeing and imbibing. If we as parents deal wisely with money, children will emulate us and learn to do so.

Be an exemplar to your child

A few examples: Listing out things to buy – prioritizing them – differentiating between essentials and non-essentials – spending on necessities – keeping money aside and making small savings– using it for emergencies – checking the price tags and making purchases – visits to supermarkets/grocery stores – cross-verifying bills – controlling the urge to buy impulsively – making judicious and cost effective purchases, counting money and stacking it in pockets.

Allowance

As the child grows, gift the freedom of spending.  By now, the child has learnt the art of spending wisely.  This would help the child learn independent handling of money – the stage where the child can be awarded with pocket money for running minor errands. This nurtures not only a sense of having a goal, and the accomplishment of the same, but also a sense of achievement and pride on completion of the task, that boosts the self-confidence in the child. In fact, children can be encouraged to take up part-time jobs too. Thus, they learn the art of working and earning money. The child can be asked to pay for mobile bills / stationery items etc. to make him/her understand the inflow and outflow of money and the judicious way of spending it.

If the child is given money for running errands, ensure they are regular habit forming chores that not only inculcate the habit of earning money through decent means but also teach them good practices that last forever.The siblings or friends can be involved in collaborative errands and duly rewarded.

In fact, we as kids had started our own little school, teaching younger kids for a minimal fee. This developed into a passion, and we were learning as well as earning.

Freedom to spend

Give them the freedom to organize parties, picnics with limited sums of money, so they can plan, budget, execute, spend and save. Also teach the kids charity and generosity to help the have-nots, with what little money your kids have. See the look of satisfaction in your children, when they help the poor and the needy with the savings from their pocket money/earned money.

Banking

Visit the bank along with the child and teach money transactions -how to use an ATM, how to withdraw money from the savings account. If required, open a small savings account in a bank or a post office in the name of your child with restricted access or a scheme of recurring deposit, so the child can draw money from the account, spend and also, save monthly – he/she can keep a track of the incoming money and outgoing expenses. Inculcate the habit of being thrifty and economical.

The art of discipline in paying back money

If you are giving money in excess to the child, ensure he/she returns it back to you on a stipulated day from the next month’s pocket money. This inculcates the importance of clearing and repaying loans without defaulting, as the child grows up.

Cashless Transactions

Now is the era of plastic money. In fact, children are smarter than parents when it comes to online transactions. Make them understand that card is also money and online transactions need to be done prudently.

Good Financial Sense

A good financial sense is a crucial life skill and needs to be built layer by layer since a kid’s childhood. Parents have opened their eyes to this important aspect. However, a few parents, due to lack of time, awareness, and knowledge, still need to understand the importance of inducing this skill in the child.

It is for the parents to sow the seeds of attitude for money management at a tender age by talking about it at home, such that it fosters itself into the child’s adulthood.

The amount of pocket money to be given to a child is purely based on parent’s financial position, interest and discretion.

Pocket money augurs a sense of financial management in children and its role in Financial Management, cannot be understated.

Experience is the best teacher, always.