How much money you should give to your child is not a straightforward answer, and will differ between families. There are clear steps you can take, however, to make sure you strike the right balance between teaching them essential financial lessons for life and over-indulging them.
As a parent, you may find yourself opening the ‘Bank of Mum and Dad’ many times as you raise your children; as pocket money, allowance, university, savings and even their first home can warrant a little help from your bank account.
No matter your stance on whether giving your children money is helping them or hindering them, when done well it can be hugely beneficial to their money management skills and their ability to understand financial planning. Teach them the benefits of saving and the steps to earning with this step-by-step guide.
What age should I start giving my child pocket money?
Deciding when, why and how much money to give your child is a personal decision. A useful tip for deciding what age you want to start giving your child money is to consider their level of understanding of managing that money. You can start younger, but by around age 10, your child should be able to confidently understand why they need money, what the benefits of saving that money will be for them, and what happens when they spend that money.
Some questions you may want to ask your child to gauge their level of responsibility are:
Do you understand what you might need money for?
Is there something you could save up for with your pocket money?
If you spend your money, do you understand that you will have to wait until you are next given money to get more?
Okay, I want to start giving my child money, but how much?
On average, young children receive £5 a week in pocket money. The amount of pocket money you give your child, however, does not make a difference in how much you help them. You should consider the standard set around the transaction of money, and the lessons in financial management above worrying about the right amount of allowance. This will depend on your family financial circumstances and above all, what you consider a feasible amount to give.
If you are worried about giving your child too much money or are not in a position to afford a set allowance, you can set the same precedent for money management by rewarding your child with savings in the form of other types of currency, such as activities or prizes.
The important thing here is to set the amount that works for you, not what other parents are doing or what your child says they will need. By completing in-depth financial planning, you will find the right amount that you can afford and that your child will benefit from.
What type of allowance should I give my child?
It may help your decision on how much money you should give your child if you decide on a system or payment schedule for their allowance. This may be along the lines of a ‘payday’ weekly, biweekly or monthly. There are different types of allowance to consider, and you may feel better about giving your child money if they have earned it and will understand the benefits.
You would give your child money on a regular basis without the need for them to have earned it. This may help them understand the benefits of saving, but they won’t experience the benefits of taking actions to earn money.
Earn money for chores
A common choice, you give your child money in exchange for the completion of certain chores or achievements. This works a lot better in helping them understand money management, receiving a ‘payday’ and encouraging them to save the money. However, don’t get too bogged down in a system that means your child expects money for every chore. Instead, remain flexible, and just create a situation where you feel satisfied your child is helping out, understands the requirement to work for money, and you can still treat them and give extra allowance when required.
How can I manage my child’s pocket money and allowance?
To manage your child’s pocket money/allowance, help them understand how to save the money and decide on goals for them to reach to give them more incentive to save their earnings. As they get older, consider opening a savings account that you or they could contribute to. This will help you both understand the benefits of giving your child money from a young age and will give you a head start in financial planning for your child’s future. As your child reaches young adulthood, they will already understand the benefits of planning for financial security and will have knowledge in making provisions for unanticipated costs.
Help your child further with financial planning.
Don’t worry about how much money you should or should not be giving your child. You can benefit your child more by teaching them the important life lesson of money management and financial planning. If you want to make a concise and well-informed plan for your families financial future, to help decide on a feasible allowance for your child, consider a consultation in Independent Financial Advice (IFA). Financial planning advice can guide you through a range of options, including life cover, pensions and retirement plans, leaving you confident you can help your child through a range of life milestones without worrying about compromising your own future. To get started on receiving an IFA consultation, you can call Cave & Sons on 01604 621 421 or use our contact form, and be safe in the knowledge you have received professional advice and continued support for your future.
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This communication is for general information only and is not intended to be individual investment advice, tax or legal advice. The views expressed in this article are those of Cave & Sons and should not be considered as advice or a recommendation to buy, sell or hold a particular investment or product. You are recommended to seek professional regulated advice before taking any action.
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