What are the best strategies to give pocket money or allowance to a child especially if you would like to teach them something through this, e.g. saving?
Just speaking from my experience here.
When I was younger (lol only 23 now), I didn't really get pocket money. If I wanted something I had to work for this, luckily at 13 I scored a paper round gaining £10 per week.
I would personally say to encourage children to do some "work", whether its a paper round, or even just house chores.
I learned early on, that to get money you have to work for it. I've always had a job since 13, most of my college years I held 2 jobs at a time, even 3 at 1 point.
Many of my friends didn't work for their pocket money, they relied on handouts, quite a few of these friends have later on in life taken the easy route, not working and rely on state (pocket money), or still have mummy and daddy pay for everything
So my moral is; don't just give out willy-nilly, teach some value to money and it will go a long way ;)
The value of money is not only in the earning and saving of it but also in the discipline in spending it. Any approach to teaching children about money must ensure a balance between the two otherwise they will either become fearful of spending (and so never actually learn that money is but a tool and can be enjoyed) or irresponsible (spending with abandon with all that concomitant misery):
1. Earning and Saving:
- Most aspects of providing children with an allowance are more than adequate at teaching this. Ensuring that money is not simply given but, in some small way (even if simply keeping their room tidy and clothes folded away), earned is a good way of linking "investment" to "reward";
- Such efforts can be improved by explaining and demonstrating how you would have had to spend money anyway to complete the task and that their performing it helps the family to save money as well.
- Many children learn the value of money too well and become terrified of spending their savings. Instead they rely on their parents to cover basic items and treats.
- Start by creating co-savings schemes for your child's birthday gift. Choose next year's gift together and join in the anticipation. Then, each month (or however frequently you pay the allowance) get them to set aside some of their pocket money at the same time as you put in a co-payment. At the end of the year buy their gift together and let them experience that lovely emotion when you buy something that cost a great deal with money that you earned and saved yourself;
- Over time you can move your child onto taking more resonsibility for their more regular needs (like clothing, haircuts and so on) and increasing their allowance accordingly (along with their responsibilities).
Teaching kids about money is a wonderful opportunity to instil discipline and values. Any strategy must be structured to suite the child's age and abilities as well. Trying to teach compound interest to too young a child will just become needlessly confusing and worrying for them. Hope this gives a few ideas.
This is a big and complex topic, but it's one I think people get wrong a lot. There's a lot of ways to treat a child's pocket money:
Tell a kid that they're getting $10/week allowance. Help them keep it safe, but don't give them access to it: Put it in a drawer in your office, or a piggie bank on a high shelf. Encourage them to save up for a big purchase. Help them decide what to spend it on. When they find something they want, talk it over with them to make sure it's right for them.
This seems like a good approach, because it encourages thrift, long term thinking, savings, and other important elements of real life. But it's a TERRIBLE idea. All it does is make the child think of it as if it wasn't really their money. The child gets no benefits from this, and will certainly not learn anything about savings.
Give the kid $10/week. Full stop.
This seems like a bad idea, because the kid is just going to waste it. Which they will. :) That's the point! There's NO way to learn except by experience.
Try and shift control of discretionary spending to the child as and when appropriate. Give them some money for clothes, or a present for their birthday, and let them spend it. If they're going to be spending all day at some event, give them money for lunch. And if they misspend it - tough! No kid is going to starve in one day because the spend their lunch money at a video arcade, but they will learn a valuable lesson. :)
You have to be careful here of two mistakes. First, only do this for truly discretionary spending. If your kid needs clothes for school, then you better make sure they actually buy it. Second, make sure that you don't end up filling in the gaps. What you're teaching here is opportunity costs, and that won't work if your child gets to have his cake and eat it too. (Or go to the movies and STILL get that new Xbox game.)
Have them get a job. And, it should go without saying, give them control of the money. It's incredibly tempting to force them to save, be responsible, etc. But all this does is force them to look responsible...for as long as their under your thumb. Nothing will impart the lessons about why being responsible is important like being irresponsible. And it's sure as hell better to learn that lesson with some paper route money when your 14 than with your rent money when your 24...
I had some friends that, when their daughters hit high school, gave them $100 on the first of each month. And that was it. They had to buy their clothes, their school supplies, their lunches and anything else that they wanted out of that $100.
Those were three of the most responsible, mature teenage girls you will ever meet.
I received an allowance growing up. There were stipulations on what I had to do with it that helped instill the values my parents wanted - in their case they were hoping to teach me to give money to my church, so I had a mandatory amount that I had to give when I received the allowance. To this day I still give money to the church, so I guess it stuck.
The allowance was tied to my doing some basic chores around the house - but loosely. It wasn't a reward for doing those chores, but it would be taken away if I didn't do them. Before I was of a legal working age I could do larger unusual tasks around the house for more money.
The relationship between chores and some form of allowance is, I think, tricky. I don't think kids should be taught that the only reason to work is to earn money. They won't earn money for keeping their future homes clean or by volunteering at the local food bank, but these are both good things to do. At the same time it is good to teach that work has a reward and that lack of work means lack of a reward.
My parents set up a savings account for me quite early. Largely what went in there was birthday cash from relatives (a great thing to talk to any family members who might give your kids gifts about) and the income from my once-yearly sale of baked goods at a craft fair. These were bigger amounts of money that I could take pride in depositing, and keeping them in a bank helped prevent me from spending them willy-nilly.
I also got a credit card at the age of 16 (only allowed in some states in the US, not sure about internationally). My parents oversaw my spending habits with it and made sure I always paid in full and on time. The money I spent was tied to my summer work in high school and college. I thought it was extremely valuable to learn how to manage a credit card before college when the card companies often seem to prey on young customers.
Check out this recent Planet Money podcast on taxes & incentives via allowance for your children. It might not directly answer your question, but it brings up some interesting things to consider when setting up an allowance for your children.
While the rest of the answers seem to be focusing on the parenting strategies around giving children an allowance, I'd like to address how to accomplish that.
I think the best most reasonable way to just to supply him with a checking and savings account at whichever bank you use. Most reasonable banks will have some form of no-fee account for minors/young people; others will waive fees if you have it paired with your account. Whatever way to can swing it, get the kid an account he can deposit/withdraw from and that is free of any additional services. He doesn't need to learn the pain of overdrafts or random fees yet. Then, just set up a recurring weekly/monthly transfer to the account, and let him determine his own allocation to savings and spending. If he can manage it online, even better, that's a far more useful skill than knowing how to fill out a deposit slip at the bank.
Robert Kiyosaki's CASHFLOW® for Kids Board Game. Enough said.