Done right pocket money provides a brilliant route into personal finance at an early age. Helping children learn to earn and save, to understand the value of money, and also develop responsible spending habits, count among just a few pocket money benefits.
Start Young: The Importance of Learning Good Pocket Money Habits Early
It may feel like getting children started early with financial literacy is a little OTT. Can children really get their heads around much of this stuff? And anyway, isn’t it a parent’s job to protect our children from those difficult real-world things that we have to deal with as adults?
In fact, young children are highly capable of understanding complex information if the instruction is organised appropriately. Just like learning a language, learning an instrument, or even learning to code, getting to grips with money is best done early on.
Research shows that those who do learn early stand a better chance of being financially stable in later life. Cambridge University academics even found that good (and bad) money habits form as young as seven. Another study found that kids learning about money and doing chores was a predictor of being successful when it comes to getting a degree or starting a career.
So early guidance and learning matters. And that’s where pocket money comes in.
Pocket money benefits
There are different ways to ‘do’ pocket money. Paying for individual chores or creating a recurring allowance that’s separate from jobs around the house. However you decide to manage pocket money, there are clear benefits for the child.
1) It teaches the value of money
By managing money and earning it from an early age kids can develop the fundamental link between hard work and reward. They learn that money something isn’t something that’s doled out for free. It has to be earned, by work, good behaviour or an important achievement.
2) Kids get to handle money
Pocket money is perhaps the first opportunity for a child to have their own funds, which to do whatever they choose: buy sweets, pay for a something that they see and like in a shop, or save for something bigger, like a game or even a present for their parents.
Children learn to appreciate what it is to handle money and think about where it comes from and where it goes. This appreciation is fundamental to a child’s financial literacy, particularly since it invariably ties in budgeting too: if I want that, I have to forego this. Side note: you may also find that parent pestering decreases too as children take control of their pennies.
3) It develops their independence and self-esteem
Because it’s the child’s own, it helps them develop a sense of autonomy. From our conversations with parents over the past year, we know that many want to help their children think and act independently, with the hope that this will help them develop into young adults who are confident with money.
By expecting children to complete self-care tasks like household chores for pocket money, kids gain the skills to function independently in the outside world. And this independence can foster self-esteem. It can be difficult for kids to learn in life and school that they can’t be good at everything, but contributing at home and taking responsibility for things (no matter how small) can create a sense of self-worth that will help them as an adult.
There are other pocket money benefits too. Giving your child an allowance and teaching them about money doesn’t just benefit them when they become adults. In the short term, pocket money reinforces the way that kids learn thanks to something called ‘metacognition’.
It’s a complex-sounding word for a simple idea that parents innately understand: children learn through observation, instruction and practice, which improves through appropriate feedback. For more on this check out the different approaches to pocket money you can take.
Disadvantages of pocket money
Of course, there are some downsides to pocket money – or at least, pocket money where cash is involved. You may find that it is difficult to administer as coins and notes. We know many parents struggle to find the right amount of cash at the right time. Chores go unrewarded, lessons can be lost.
Perhaps a more significant problem of using cash for pocket money is that cash is on the way out. In 10 years, just 1 in 10 transactions will be completed with physical money. If the aim of pocket money is to prep our children for a digital future, shouldn’t it use digital money?
That’s where Pigzbe comes in. Consisting of the innovative Piggy Wallet™, a kids pocket money app and entry-level digital currency Wollo, Pigzbe is a new way of doing pocket money for a digital world.
You can set your kids tasks and chores, set-up recurring allowances or send gifts straight from the Pigzbe app on your phone. Plus, it helps children get to grips with digital money with the help of a handheld device (the Piggy Wallet™ – like a digital piggy bank) and a new way of visualising digital money.
P.s. If you want to know more about pocket money beyond benefits, plus get practical tips on how best to introduce pocket money at home, check out our Parent’s Pocket Money Guide.