For all the developments in the way we spend money, from the emergence of online banking to the growth of contactless payments, many parents continue to give cash to their children as 'pocket money'. No doubt this weekend, millions of children across the country will eagerly receive their pocket money and, shortly after, various high street and online retailers and digital gaming platforms will benefit from them blowing the lot!
Although 51% of parents give their children 'pocket money' in order to encourage responsible saving habits, a survey of 10,000 parents and children, conducted by the Royal Economic Society, found that almost a quarter of children fail to save any of it. As many parents will know, the first impulse of a child with a pocket full of coins is not to deposit them into a piggy bank, but into a shop till. When it comes to teaching our children to save, we need to consider whether 'pocket money', both as a term and practice, is working to our advantage. Should it prove counterproductive, is it time to consider changing tack?
Let us start with the term. 'Pocket money' for many implies a weekly or monthly treat; a small amount of money to be spent on goodies. It suggests a few coins in the pocket and not something intended to be saved and carefully budgeted. Larger, important purchases do not tend to be covered by 'pocket money', but rather from Christmas or birthday money and gifts, or, frequently, by the Bank of Mum and Dad. So, put simply, the term 'pocket money' tends to trivialise the money given to children, creating the impression that it is there to be spent.
Rather than using the term 'pocket money', I suggest using a term that is usually reserved for teenagers and young adults; 'allowance'. Teens tend to be given greater financial responsibility and are often expected to budget their money. Whilst I appreciate an allowance is usually a larger sum, it is the principal that is important; it implies an amount of money paid to support their needs or expenses - essentially their living costs, such as a phone, clothes or travel.
I think that this shift in emphasis can happen at a younger age, even when the sums may be smaller. My wife and I made the switch from 'pocket money' to 'allowance' when our children were eight and nine and immediately noticed a shift in attitude. They started to save more and think carefully about what it was that they were buying. Of course, this was not solely down to the terms used. We introduced the idea of their allowance being used for spending they had not previously been responsible for, giving them a little more control to reinforce the message and help make them more financially responsible.
At a time when cashless payments are on the increase, the term 'pocket money' is arguably an anachronism; the simple fact is that money is increasingly not kept in our pockets but in our electronic wallets or on our bank cards. We need to ensure children do not develop a disconnect between physical currency and electronic money, while helping them develop budgeting skills from a young age.
To encourage financially responsible behaviour in our children, we should start by thinking about the terms we use and the habits we might foster. Switching from 'pocket money' to 'allowance' at the right age not only helps develop and embed budgeting skills; it reinforces our efforts to teach children about the value of money in an increasingly cashless society.