Pocket money, also known as an allowance, is a traditional way for parents to provide their children with a small, regular sum of spending money. Providing pocket money to children is not just a way to finance their desires for sweets and phone top-ups – it can provide an excellent opportunity to teach important money management skills from a young age. Below are some of the key reasons why pocket money can help set children up for financial responsibility later in life.
Teaches the Value of Money
Receiving a regular, earned amount of pocket money enables children to learn that money has value and is not an unlimited resource. Children can learn the concept of saving up their pocket money over weeks or months to afford a larger purchase they have their eye on. This helps teach delayed gratification and saving habits. Receiving pocket money on a schedule also teaches consistency and reliability of money coming in, setting up good expectations for later wage-earning.
If you are fostering with fosterplus.co.uk, use your fostering allowance to help fund a foster child’s pocket money.
Encourages Financial Planning Skills
Once children get used to receiving a regular amount of pocket money, they can begin to budget and plan how they will use their money. Setting simple spending goals for children encourages them to think ahead about what upcoming expenses they need to save for, like birthday gifts for friends. Learning to plan financially from a young age will set them up well for the future.
Provides Financial Independence and Control
Pocket money allows children to make independent choices about spending money, rather than having to ask parents to buy items for them. They learn the responsibility of having their own money to budget and spend or save as they choose. Having this control over their own finances helps children develop money management skills and a sense of responsibility without being tied to parental purse strings.
Introduces Money Prioritisation
With only a limited amount of pocket money, children will need to learn to prioritise their spending and make choices about what’s most important to them. Learning these judgement skills around needs versus wants from a young age will help children become responsible spenders as adults.
Allows for Money Mistakes
Children will inevitably make unwise spending decisions with their first tastes of financial freedom. However, small mistakes made with pocket money will provide valuable lessons about money management. With repeats of their allowance coming in, parents can talk through better choices children can make next time. Making financial mistakes early provides important learning experiences.
Provides the Opportunity to Learn to Save
Encouraging children to save a portion of their pocket money each month provides an introduction to saving and reaching financial goals. Watching their saved up money grow over time teaches the benefits of regular saving and how small sums can add up to larger amounts. Parents can offer to match the savings as an extra incentive. Building these lifelong saving habits starts with pocket money.
Using pocket money to teach important lessons about budgeting, saving and spending money wisely gives kids an invaluable head start with personal finance education.
