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A child’s allowance is more than money

Giving children an allowance or pocket money provides the funds they need for daily expenses and can also help them learn about managing money.

Giving children an allowance or pocket money provides the funds they need for daily expenses and can also help them learn about managing money. More than just giving your children cash, however, it’s important to figure out the right amount and how to use their allowance to teach financial skills.

GIVING CHILDREN AN ALLOWANCE

Here, as in other countries, most parents give their children an allowance or pocket money. A survey by Prudential Insurance on Singapore and six other markets in Southeast Asia found that 96 per cent of children receive regular pocket money from their parents.

Research in other countries similarly shows that most children receive money from their parents, with a study by Money Advice Service in the UK, for example, showing that 44 per cent of 4 to 5-year-olds and 73 per cent of 12 to 15-year-olds receive a regular allowance.

Children seem to spend money in similar ways in different countries, too. A survey by parenting magazine Asian Parents here, for instance, found that children most often spend money on food, and sometimes on books and knick-knacks. The Childwise Monitor report in the UK this year found that sweets and chocolate are the top spending choices, with crisps, snacks and soft drinks also being popular.

How parents give money varies, though. While an allowance is a fixed amount given on a regular basis such as weekly or monthly, pocket money may be given daily and in different amounts, according to co-authors Alessandro Bucciol and Marcella Veronesi from the University of Verona. Research shows that giving an allowance rather than pocket money enables a child to decide how to allocate his or her expenses and to make trade-offs.

THE BENEFITS OF TEACHING SAVING HABITS

Beyond just enabling children to buy what they need, an allowance offers opportunities for parents to inculcate good money management habits in their children.

Parents may not be doing enough, however, since the Prudential survey also found that only 13 per cent of parents believe their children have good money management skills and that 44 per cent feel their children are saving only because they had told them to do so.

That lack of teaching has a long-term impact because, as research by economist Lewis Mandell found, a regular, unconditional allowance is associated across cultures with “diminished financial literacy, lower levels of motivation and an increased aversion to work.”

What parents should do, then, is to go beyond just giving cash.

Parents should provide oversight as to how the money is spent, and teach about budgeting and saving, suggests Elizabeth Odders-White, associate professor at the University of Wisconsin-Madison. Her findings show that saving behaviours of adults are rooted in childhood.

More importantly, financial socialisation generally occurs implicitly through modelling behaviour from parents rather than via direct instruction. She also notes that children transit from building cognitive abilities such as impulse control and planning when they are between 3 and 5 years of age, on through to establishing financial knowledge and skills in navigating financial choices when they are 13 to 21-years-old.

In their research in the Netherlands, Bucciol and Veronesi similarly found that the best strategy involves a combination of giving pocket money, controlling money usage, and giving advice about saving and budgeting. Parental teaching on saving habits increases the likelihood that an adult will save by 16 per cent and the saving amount by about 30 per cent.

Giving an allowance should also be paired with discussions about the family budget, Mandell suggests. The economic socialising power of parents may depend primarily on the rules they set for allowances, as well as children’s understanding of these rules.

GIVING THE RIGHT AMOUNT

Along with using an allowance to teach money management skills, it’s important to decide how much money your children should receive. “The Opposite of Spoiled” author Ron Lieber suggests giving your kids just enough so that they can get some of what they want but not so much that they don’t have to make difficult trade-offs. “Let them own those, so they know what it’s like to make financial decisions that resemble grown-up ones.”

On a practical basis, the Young Parents editorial team suggests checking with parent support groups or visiting the school canteen yourself to gauge the price of food and drinks so that you do not under- or over-budget.

While the amount children receive per day varies, a poll by website DollarsAndSense last year showed the average daily allowance was S$2.10 in lower primary school and S$3.10 in upper primary school.

A survey by Asian Parents similarly found that parents give primary school children between S$1 and S$5 a day, and secondary students receive S$5 to S$10 per day.

“Consider factors such as your own financial circumstances, the child’s age and their understanding about managing money,” Asian Parents advised, “as well as what they really need the money for. Once your child has got into a pattern of saving, you may want to move on to weekly, and then monthly allowances.”

GIVING AN ALLOWANCE THE RIGHT WAY

Children do need money for food and transport for school as well as other purchases, so giving them an allowance is the right thing to do. More than just giving money, though, modelling good behaviour and using it to teach money management can give them skills that will last a lifetime.

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