Pocket money: Passing on financial skills to children and grandchildren
Handing over weekly pocket money to children and grandchildren can do more than giving them a bit of spending money, it can be the start of building financial skills that will last into adulthood.
Knowing how much pocket money to give children or grandchildren can be difficult. Yet, for many, it's an important part of growing up and their first taste of handling money.
So, how much should you hand over?
Whilst it'll be a decision that depends on your financial situation and attitude to pocket money, understanding the average can be useful. According to Charter Savings Bank, the average amount of pocket money children in the UK receive is £13 per week. As a result, the average child receives over £50 each month. In total, parents and grandparents are handing over £11.1 billion every year.
The research found that the amount of pocket money given varied between regions, with children in London likely to receive more than £25 a week, and with the age of the child.
Over the years, the average amount of pocket money has gradually increased. It's partly driven by inflation, but the things children want to purchase with their money have often increased in price too. Whilst you may have spent your own pocket money on sweets or even a toy, today, gadgets and computer games are likely to be high on the list.
Whilst setting the right level of pocket money for you is a personal decision, there are plenty of benefits to receiving it.
1. Getting used to handling money
Simply handling money can help children get used to spending and planning their finances. To begin with, the physical coins or notes can be easier to deal with, as they can see when their funds are dwindling.
As children get older, giving pocket money on a card can also be useful. After all, millions of payments are cashless and we're moving towards a society where cash is used less. It can be difficult to understand and budget when money isn't physical, starting as a child can help.
2. Building a sense of responsibility
For many children, being trusted with some money can boost their sense of responsibility and pride. Receiving pocket money is a milestone that many will enjoy. If they're often asking for toys and sweet treats, they may think twice when it's the money in their pocket that will be spent.
3. Learning the value of saving
34% of parents and grandparents said they wanted to encourage kids to save. Whether they're putting money to one side for a gadget they've had an eye on or simply for a rainy day, it's a habit that can last a lifetime. Pocket money can be a valuable way to help children learn the value of saving to reach their goals.
4. Understanding a budget
Some children will receive their pocket money and it'll instantly be burning a hole in their pocket. If this sounds like your child, it's a great time to teach them how and why we should budget. Making their weekly allowance stretch for a full seven days can be a challenge but it's a step that could help them manage their income and outgoings in the years to come.
5. Improving maths skills
Finally, pocket money can provide some practical experience of the skills they've been learning in the classroom. Working out what they've got to spend and how much they'll be left with after a purchase can help to improve their maths skills and make it second nature.
Building a nest egg for children and grandchildren
The research highlighted that parents want children to save for the long term too. In fact, almost one in five (19%) insist on keeping some pocket money out of reach from their children. If you agree with this, it may be time to look at ways you can start building a nest egg.
A standard savings account is an excellent option for savings that you may want to dip into in the short term. However, if you hope to save for future goals, perhaps a first car, a deposit for a home or university costs, an account that locks money away may be more suitable.
There are savings accounts that offer higher interest rates in return for locking money away for a defined period of time, say two years. Alternatively, a Junior Individual Savings Account (JISA) can provide an excellent solution. You and loved ones can add up to £4,388 each tax year to a JISA, which is tax efficient.
The child can take control of the account when they're 16 but won't be able to make any withdrawals until their 18th birthday. At this point, they're free to access it as they wish. If they leave the money in the JISA, it'll automatically convert to an adult ISA.
If you choose a JISA, you essentially have two options:
- Cash JISA: This is a cash account so the money deposited is protected under the Financial Services Compensation Scheme. The deposits will receive interest, which is typically higher than adult ISA accounts, which isn't subject to tax. However, interest rates are likely to be lower than inflation, meaning money loses value in real terms over an extended period.
- Stocks and Share JISA: If you're saving for long-term plans, investing may be an option that's appropriate for you. It's a step that can help your contributions grow at a faster pace. However, all investments come with some level of risk and you need to keep this in mind when selecting this option or picking investments. Over a long timeframe, investments can help your savings keep pace with inflation. As the money is in a JISA, returns won't be taxed.
If you'd like to discuss saving for a child or grandchild, please get in touch. We'll help you understand how your gifts can be used to give them a helping hand as they reach adulthood.
Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.