Knowing how much pocket money to give children or grandchildren can be difficult. Yet, for many, it’s an important part of growing up and their first taste of handling money.
So, how much should you hand over?
The exact amount will depend on your financial situation and attitude to pocket money, but, according to Charter Savings Bank, the average child in the UK receives just under £13 per week pocket money.
That’s more than £50 each month and, in total, parents and grandparents are handing over £11.1 billion every year.
The research found that the amount of pocket money given varied between depending on the age of the child, and where they lived, with children in London likely to receive more than £25 a week.
Over the years, the average amount of pocket money has gradually increased. It’s partly driven by inflation, but the things children want to purchase with their money have often increased in price too. Whilst you may have spent your own pocket money on sweets or even a toy, today it’s gadgets and computer games that are likely to be high on the list.
The amount of pocket money you give is a personal decision. However, there are plenty of reasons that giving it can help your child or grandchild to learn valuable financial skills.
1. Getting used to handling money
Simply handling money can help children get used to spending and financial planning.
On a basic level, looking after physical coins or notes can help younger children to see when their funds are accumulating or dwindling.
As children get older, giving pocket money on a card can also be useful. After all, millions of payments are cashless and we’re moving towards a society where cash is used less. It can be more difficult to budget when money isn’t physical and starting as a child can help.
2. Building a sense of responsibility
Being trusted with money can boost a child’s sense of responsibility and pride. Receiving pocket money is a milestone that many will enjoy. If they’re often asking for toys and sweet treats, they may think twice when it’s the money in their own pocket that will be spent.
3. Learning the value of saving
34% of parents and grandparents say they want to encourage kids to save. Whether they’re putting money to one side for a rainy day or for something they’ve had their eye on, it’s a habit that can last a lifetime. Pocket money can be a valuable way to help children learn the value of saving to reach their goals.
4. Understanding a budget
Some children will receive their pocket money and it will instantly burn a hole in their pocket. If this sounds like your child, it’s a great time to teach them how and why we should budget. Making their weekly allowance stretch for a full seven days can be a challenge but it’s a step that could help them manage their income and outgoings in the years to come.
5. Improving maths skills
Finally, pocket money can provide some practical experience of skills children have been learning in the classroom. Working out what they’ve got to spend and how much they’ll be left with after a purchase can help to improve their maths skills and make it second nature.
Building a nest egg for children and grandchildren
The recent Charter Savings Bank research highlighted that parents also want children to save for the long term. In fact, almost one in five (19%) insist on keeping some pocket money out of reach of their children. If you agree with this, it may be time to look at ways you can start building a nest egg.
A standard savings account is an excellent option for savings that you may want to dip into in the short term. However, if you hope to save for future goals – perhaps a first car, a deposit for a home or university costs – an account that locks money away may be more suitable.
There are savings accounts that offer higher interest rates in return for locking money away for a defined period of time, say two years. Alternatively, a Junior Individual Savings Account (JISA) can provide an excellent solution. You and loved ones can add up to £9,000 each tax year to a JISA and benefit from tax-efficient returns.
The child can take control of a JISA when they’re 16 but won’t be able to make any withdrawals until their 18th birthday. At this point, they’re free to access it as they wish. If they leave the money in the JISA, it’ll automatically convert to an adult ISA.
If you choose a JISA, you essentially have two options:
- Cash JISA: This is a cash account, so the money deposited is protected under the Financial Services Compensation Scheme. The deposits will receive tax-free interest, although interest rates are likely to be lower than inflation, meaning money loses value in real terms over an extended period.
- Stocks and Share JISA: If you’re saving for long-term plans, investing may be an option that’s appropriate for you. It’s a step that can help your contributions grow at a faster pace. However, all investments come with some level of risk and you need to keep this in mind when selecting this option or picking investments. Over a long time frame, investments can help your savings keep pace with inflation. As the money is in a JISA, returns are paid free of both Income Tax and Capital Gains Tax.
If you’d like to discuss saving for a child or grandchild, we can help you to understand how your gifts can be used to give them a helping hand as they reach adulthood. Please get in touch or call (01372) 724 249.
Please note
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
