Pocketmoney: to pay or not to pay, that is the question.

For most of us, washing the car to save for the latest Cabbage Patch doll or Lego set was part of being a kid. Everyone had their rostered jobs (and you made sure you smothered your cutlery in gravy when it was your brother’s turn for the dishes). It taught you how the world worked – how to save, how to earn, and how it felt when you wasted your stash at the corner shop.

Now that we’re the ones dishing out the coin, what’s the best way to model a good work ethic and prepare our kids to be money-savvy? Experts agree on one thing – our children’s financial future depends on getting it right.  (After all – the quicker they learn to be financially independent adults, the quicker they move out). So, what methods are most effective?

The Raising Children Network says earning pocket money for household chores can be valuable as kids actively have to choose between spending or saving – and learning to save means learning to wait (something most Post-millennials don’t do quite enough of if you ask me).  

But is paying our kids to do basic jobs (we adults are stuck doing for free), the best way to get them to learn to earn and manage cash?

The argument for paying pocket money for chores

  • Paying kids for effort teaches an important life lesson – in the real world, money needs to be earned.
  • Managing their own money allows kids to make a connection between earning, saving and spending.
  • If children do without smaller impulse buys to save for something important, it can help instil a sense of pride, and appreciation for the toys they finally earn.
  • Money motivates, so paying them helps get the chores done with less nagging.

The argument against paying pocket money for chores

  • Adults don’t get paid to clean up their own mess, so why should kids? It just sets unrealistic expectations for later in life. Family members should work together as a team without monetary incentives.
  • Paying children for chores makes it harder to get children to work without being paid. A simple request to help bring the groceries in might end with ‘how much will I get?’ or decline all together if they’re still cashed up with birthday money. So, a system that always pays for jobs may actually reduce the work kids do.
  • If they don’t do their chores (and are happy to be broke, given you provide for them anyway), this deprives the child of the experience of managing their own money (and you may end up paying for their ‘extras’ and putting out the bins).

If you’re keen to start a pocket money system – when is a good time to start?

By some cruel twist of fate, toddlers are often busting to ‘help’ but as soon as a they’re old enough to actually be useful, they’re no longer interested. That’s when money can help.

Star charts (say, for toilet training or tidying when they are toddlers) can be monetarised as soon as your child gets the concept of money being needed to buy things – often between the ages of 4-7.

When taking your kids to the store to finally part with their cash – Barefoot Investor Scott Pape advises to insist kids use physical cash where possible. Piggy banks are preferred to bank accounts to allow a more tactile learning experience.  Our tendency to ‘tap and go’ can make it hard for kids to learn the concept of ‘change’, and see the real value of the money changing hands.

How much is too much?

What your family budget will allow and the chores expected of the child all need to be factored in.  Roughly a dollar per age might be a suitable place to start.

Also discuss what pocket money should cover. Most basics for living are covered by parents, but does the cost of tuck-shop, bus fares or a weekend movie come from their pocket or yours?  

Stipulating boundaries on what the child may spend their hard-earned money on is also wise to avoid arguments along the lines of ‘I bought it so I’ll eat it when I want!’ as they hoe into a block of Cadbury right before dinner, or ‘it’s my phone so you can’t take it off me!’ when imposing screentime limits.

One tip for young players – beware of the trap of paying too much – inflated prices set expensive precedents for future negotiations, and you want to avoid raising divas that ‘won’t get out of bed for under $20’.

Regardless of wealth, a general rule is to give your kids enough money to do ‘something’ with their lives but not enough to allow them to do ‘nothing’.

What should I expect kids to do at what age?

While it can feel unproductive to spend more time explaining how to do a job than it would take to just do it yourself, parenting isn’t about efficiency – teaching skills for living as independent adults is part of the job.

The following list is a guide only, and safety should always be the number one priority. Even if you feel your child has only a 20% chance of doing a task successfully, you should give them the chance to prove you wrong. They may surprise you.

 Age of Child   Suggested Tasks
4-5 Years Putting toys away or clothes in the laundry, tidying their room or making their bed. (Pictures on drawers and shelves can help with this process).
6-7 Years Table setting, clearing dishes, watering plants, folding washing, sorting socks or feeding pets.
8-9 Years Help peel vegetables for dinner, unload the dishwasher, vacuum or rake leaves.
Take out the bins or recycling, sweep, clean benchtops and bathrooms.
12+ Years Cook a meal, iron own uniforms, mow the lawn, walk the dog or wash the car.

Encourage teenagers to suggest new ways of making a quick buck to get the entrepreneurial spirit flowing – do elderly neighbours need their cars washed, or lawns mowed? Can they sell old toys by running a garage sale, perhaps (or via eBay?).

Once significant cash is being earned, encourage responsible spending habits. David Koch suggests saving 50%, spending 40% and donating 10% to your child’s favourite charity.

What system works?

Often a few (written down) rules are needed to ensure the system is fair for all children in the family. Consequences of failing to do certain tasks should be made clear.

A few models exist:

  • Pay per job (your chores unlock your allowance) and reduce their allowance if certain jobs aren’t done – this can encourage a good work ethic and help kids learn no effort = no payment, or…
  • Pay pocket money regardless of chores. This allow kids to become responsible money managers, see their savings grow, and contribute to the family chores when asked but does not directly link chores to cash.
  • Others have a bet each way, stipulating core ‘family’ jobs as part of your responsibility as a member of the household (i.e. set the table, make your bed), but provide opportunity to earn extra cash by doing extra chores (folding washing, mowing lawns).
  • Job auctions – if you have a few kids of similar ages, set out that week’s chores and a payment amount and allow them to pick which chores they want to sign up for.

By modelling responsible saving, starting early and finding the best system that works for your family, we can start to instil positive spending habits for our children – for life.   By Kylie Kaden     

Read the full article at My Child Mag and more for free…