22.09.2017
8 tips on how to handle the issue of pocket money
- 323 million Euros a year are placed in children’s hands
- 9 in 10 Austrians believe early education in money matters is important
It is difficult for children to understand money and its worth. And Austrian parents are aware of this, with 89 percent of the population considering money management to be an important part of education. Eight in ten people believe children should be taught how to handle Euros, and associated financial desires, from a young age, or at least by the time they start primary school. Just as many think pocket money is a suitable way of doing this. How, when and how many Euros should be given to one’s offspring is something which requires careful deliberation. Erste Bank und Sparkassen can offer a few tips.
The latest Integral survey conducted on behalf of Erste Bank und Sparkassen has found that pocket money allows children to learn how to handle money. Nine out of ten Austrians rate learning how to “divide up one’s own money”, “estimating the value of a monetary amount”, “taking responsibility” and “independent handling and recognising the purpose of saving” as relevant motives for granting pocket money, while 8 in 10 believe pocket money helps children and adolescents learn to “defer their needs” because they have to set priorities and save. Around three quarters of the population is of the opinion that “having money for one’s own desires” and “being able to decide on one’s own money and thus reduce conflicts” are also key factors in favour of pocket money, while only a third of Austrians deem it important that money be given to children to comply with social norms.
But how much is appropriate for the various ages? “There is a simple formula: For children, we recommend 30 to 50 cents multiplied by their age per week. For adolescents, it is 2 to 3.60 Euros times their age per month”, recommends Philip List, director of the Erste Financial Life Park. Using the lowest values for the respective population numbers in the six to 19-year-old bracket, we obtain an amount of approximately 323 million Euros being handed over to children as pocket money every year. “But this estimate must only be seen as a rough indication, for not every child receives pocket money on a weekly or monthly basis. It still makes us sit up and take notice, though, because how children handle it and what they do with it is primarily influenced by their parents, who need to teach their kids how to handle money”, says List. As a guide for parents, Erste Bank und Sparkassen have put together the most important pocket money tips:
1. Pocket money can be used as they wish
The child themselves determines how they use the pocket money. They can spend their money on whatever they want – as long as it is not harmful to them.
2. Pay pocket money regularly and punctually
Reliability is an important aspect when it comes to pocket money. The child will learn to see agreements as something binding. Weekly payments have proven successful for children up to 12. From the age of 13 onwards, it is a good idea to switch to monthly payments. “The child will learn to divide up what they have, which is a skill also required for successful money management. Pocket money is ideal for this”, says List.
3. Do not pay pocket money in advance or as an additional subsequent payment
Realising money can be tight and spontaneous desires cannot always be immediately fulfilled is an extremely important lesson. According to List, “you can, however, give children the opportunity to improve their pocket money by performing certain tasks, and thus earn one or two Euros more for it. This will enable them to meet any additional monetary needs.”
4. Pocket money is not a parenting tool
Pocket money must be paid out regardless of performance. Increasing it for good school grades or cutting it out for bad grades would reduce the pocket money to an instrument of reward or punishment. As such, it would lose its role of educating children to become independent. Pocket money should be paid out even if the child has behaved badly – unless they have deliberately destroyed something, in which case the damage repairs shall replace the pocket money.
5. Exemplify saving in front of your children
If parents set a good example by themselves saving money, it will usually be better comprehended by the child. Telling educational stories about saving is also advisable.
6. Pay for additional work separately
If the child has done extra work around the house, this can be rewarded separately.
7. Pocket money is not designed to cover basic needs
Expenses for school items, food and clothing are not included in the pocket money. If the intention is for the child to support themselves during the day, they will need to be given separate money for this. Exceptions: Wilful destruction or the unconditional desire for a particularly expensive item of clothing. In this case, it would be appropriate for the child to contribute to the payment.
8. Pocket money should match the family’s standard
Too little pocket money can result in the child being excluded from their social group, while too much pocket money will not teach the child to set priorities or go without.
Interested parents can find further tips in the Erste Bank und Sparkassen Pocket Money Guidelines, available in German at https://www.sparkasse.at/sparefroh/lehrunterlagen/taschengeld.
About the survey: Erste Bank hired the market research institute Integral to conduct a telephone survey on financial education and pocket money. Between 4 and 18 August 2017, 500 people were interviewed by telephone regarding these topics. The results are representative of the Austrian population aged 14 and over, i.e. around 7.6 million people.
About Erste Financial Life Park:
Erste Financial Life Park, “FLiP” for short, is a globally unique facility with the goal of improving the financial capabilities of children and young adults. Established at the Erste Campus in Vienna, FLiP is a place where financial knowledge is imparted in an innovative manner and where the importance of finances for one's personal life planning can be tangibly experienced. With that, FLiP promotes personal financial responsibility, as well as prevention of personal over-indebtedness, and thus ultimately contributes to the prevention of poverty. FliP's offerings are inclusive, and are opening barrier-free, multilingual access to financial education for all types of schools and all levels of education. It is an independent institution without a marketing or sales mandate. The objectivity of its information is ensured by a scientific advisory board with experts from the Vienna University of Economics and Business Administration, Stanford University, the Austrian Association for Debt Counselling and the OECD.
www.financiallifepark.at