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Is pocket money short changing our kids

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Traditionally allowances or ‘pocket money’ have been a way of teaching children about money, but is this the best way?

Australian parents are forking out more than $7000 to their kids throughout their childhoods and the going rate for toddlers is $5 per week averaging around $260 per year. Two thirds of Australian families are on the pocket money train but only one third of children have to do anything to earn it. (Source Finder.com)

It’s not just about handing over the money

However Lewis Mandell, a financial economist with a research specialization in financial literacy, says his review of more than 50 years’ worth of allowance research found that kids who receive a regular, unconditional allowance tend to think less about money than kids who don’t. In fact, he adds, those children appear more likely to grow up to be "slackers," since they aren't learning to associate work with money. (Source: Lewis Mandell)

A review of current financial commentary shows that the consensus is that children often do not understand the purpose of receiving an allowance and giving children an unconditional allowance can do more harm than good.

Mandell in particular believes parents who pay an allowance and understand personal financial issues themselves and take the time to talk to their kids about budgeting and credit can reasonably expect good results. In most households however, Mandell says, the top reason for giving kids a weekly allowance is to minimize the time they must take dealing with kids and money issues. Mandell adds “Most parents are themselves financially illiterate and pass down an oral tradition of misinformation”.

With financial literacy not generally taught in schools, the responsibility does lay with parents to ensure their children are learning the right behaviours.

Financial journalist David Koch is a huge advocate of pocket money and gives excellent advice on linking it to specific chores. However he believes some chores should not be related to money as children should learn that that some tasks come with being part of a family. (Source: MoneySmart ASIC)
 


David and Libby Koch discuss some approaches you could take when talking to your kids about money.

This video was developed in partnership with the Koch family and Father Chris Riley's Youth Off The Streets. For more information, visit MoneySmart by ASIC.
 


Top tips for managing pocket money

  • Start off with weekly pocket money but when they are teenagers, change it to fortnightly, then monthly. It forces them to budget better and not go and blow the cash at once.
  • Don't cut off money as a form of punishment. It encourages the idea that bad behaviour is negotiable and not simply unacceptable.
  • Make a job checklist so everyone knows who does what. This avoids arguments among family members until the routine is entrenched.
  • Set a rule that a portion of pocket money, say 50 to 75 per cent, must be saved. But then sit down and work out a goal for those savings.
  • Encourage them to give a fixed part of their pocket money to charity. They should choose the charity and it helps instill community values.

Source: news.com


Bank Account or Piggy Bank?

Younger children may respond well to having physical money in a piggy bank and being able to count it out but as they get older they need to start understanding the concept of digital banking. It is common for children to think that money just comes from a “hole in the wall”. Setting your children up with a bank account and regularly logging on to internet banking with them will help set them up with an understanding of how money is managed in a digital world.

Parents can use the IMB Zoo Account with their kids and introduce money management skills utilising a fun, interactive account that encourages kids to save by rewarding them for their efforts.

 

Enquire about an IMB Bank Account for kids

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IMB has a growing branch network throughout the Illawarra, Sydney, NSW South Coast, the ACT and Melbourne. We have a lending specialist in every branch and a team of mobile lending specialists who will come to you. IMB members enjoy access to free automated phone and internet banking and a team of professionals who are just a phone call away at our locally based call centre.

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