Consumer Corner: Should you give your child pocket money to teach them about saving?

By age seven, children can develop money habits that can last a lifetime.

Mid-term break is just over, but the Easter holidays are just around the corner. This will mean kids have more time away from the classroom and with that comes freedom. However, school holidays can be expensive times for parents, so when is it time to start teaching your children about money and saving? Is it ever too young? After all they should know that money, as we say, “doesn’t grow on trees”.

Financial expert Frank Conway says that children as young as three years of age are identified as having developed an awareness of money and by age seven can develop money habits that can last a lifetime.

“Money is one of the greatest tools invented by man. The sooner children can learn about it, the better,” he says.

For parents, it is important that when they do give money to their children, they do so on the basis of using it wisely, sparingly and to learn, says Mr Conway.

“So, they need to teach kids that money is finite, that it can run out and there is no endless source of money. Here, it is important to advise kids to put a little money aside, for future needs. And where they do have spending plans, that they do so by saving.” 

A Bank of Ireland survey found that on average younger children in primary school get around €6 pocket money a week in Ireland while in secondary school this jumps to €10 per week. Of course, this will vary, but in order to get pocket money, experts will say that children should earn it. There could be a list of weekly chores that they have to complete before getting their pocket money and that will take time and effort from parents to ensure they are done. 

Revolut also has a handy feature which will allow parents to set up a child’s account and give them pocket money each week automatically.

According to schooldays.ie it is good to get your child involved in agreeing the amount of pocket money with you. It says you can start by listing items they want to spend their pocket money on. It says that if a child, for example, gets €5 per week, then you could agree that €2 must be saved and the rest can be used to purchase treats such as sweets or a magazine.

One thing to note, however, and this may be tricky for parents is that if their child fails to save their money, parents should not get into the habit of “bailing them out”.

On average, younger children in primary school get around €6 pocket money a week in Ireland while in secondary school this jumps to €10 per week

“I think pocket money serves a number of key roles. It creates a link to the money system, it offers an opportunity to develop the concept of financial independence provided it is managed responsibility and encourages people to save for a ‘rainy day’. But most of all, it teaches money is finite and this is conveyed to the child. So, if the money runs out, there is no bailout,” Mr Conway says.

John Lowe of Moneydoctors.ie says that when starting to think about educating your children with regard to money, think about how your parents approached money with you and how that influenced you. He says after that consider how your attitude will influence your own children.

“Regardless of your level of wealth, everything you say or do in relation to money will have an effect.” 

He points out that if you don’t discuss money in front of your children, they won’t learn anything about it.

“If you are mean with money, or overly generous, or if you never waste a penny, or if you spend like there’s no tomorrow, your children will be watching and learning,” he says.

Mr Conway points out that as kids get older they can learn more about financial matters such as income and taxation and understanding a payslip. He said other topics that are popular with older kids and should be explained are how to pay off a mortgage and pay into a pension.

Schoolday.ie says that it is important to keep a close watch on how teenagers are managing their money and if they are using too much of their pocket money too quickly, talk to them about it.

Money is not a subject taught in school but it forms such a big part of our lives. 

Mr Lowe says that given children are unlikely to learn much about money from any other quarter than their parents and given the way debt is spreading through society like some “super-virus”, he says it is clearly important that parents educate their children about personal finance.

“In Ireland today our children really do not appreciate the hardship their parents went through and in some respects, this is a pity, because parent’s values are so much different to their children’s.

“However, the last recession has refocused the core values of parents and their children,” says Mr Lowe.

He does, however, point out that parents do not want to worry their children about money but there is still a lot to be said for showing them where your income comes from and what you do with it.

“When your children realise how well you manage money they can’t fail to be proud of you.”