How much pocket money to give your kids
The teenage years are often the spending years, beginning with mobile phones, clothes, electronics and going out. Then come cars, higher education fees, travel and, if they move out of home, more bills.
Many teenagers find it hard to save money. Often they have a sense of entitlement that is hard for parents to live with, and while you want to help them you don't want them to slip into a habit of overspending.
You want your kids to manage their finances day to day, keep track of their expenses and resist the temptation to spend money they don't have. But it doesn't happen automatically.
After all, they don't really need to be responsible for money, with parents paying all their living costs. They don't understand what saving for a rainy day is all about, for example. Also money these days is invisible, so kids don't see their savings build up in a piggy bank as their parents did.
Research says kids develop their emotional approach to money when they are young. They pick up on parents' attitudes and knowledge, and are also influenced by their peers, social media and advertising. Parents and grandparents are a good guide to help them through the dilemmas of spending and saving.
Parents need to hit the right note about money and get their kids' attention before they tune out of parental advice as they grow older. Putting in place a regular allowance and talking about their money may seem unnecessary - particularly when they aren't interested - but its real importance becomes apparent in early adulthood when they can access debt.
A game I used to play with my kids was giving them a choice between buying a soft drink or having $2.
More often than not they chose the money, which went into their savings. I've met kids as young as eight who are saving to buy a house.
When I was a kid, I had three savings containers. One was for travel when I was older. Another was for old age because my grandmother was always talking about it. The third was for spending.
It boils down to having self-control and saving, not consuming.
Opening a savings account and depositing pocket money consistently is a proven step for developing kids' money management skills. Just when you decide to give your kids pocket money is up to you. The earlier you start, the sooner you can talk about how much they are saving.
To bolster savings, encourage your kids to deposit birthday and Christmas money in their savings account. If they can't make up their mind about what to buy or they are saving for something big, they can park it in the savings account. You may like to encourage them by matching their additional dollars with yours.
Teens who are saving or investing or had savings accounts at 12 or 13 are more likely to be savers at age 16 or 17, according to the Longitudinal Study of Australian Children (LSAC) into how teens manage their money.
It found kids are better savers if their parents pay their allowance regularly and give them some freedom about how to spend it.
If parents pay an allowance irregularly or stop it or take it away for whatever reason, the study found their kids tend to spend more. Setting up a regular account transfer is straightforward these days thanks to internet banking.
You may want to tie an allowance to specific tasks. The study found that around 80% of children aged 10-13 years receive pocket money tied to completing chores, doing their homework or following household rules.
How much do you give?
Some parents give their kids the equivalent of their age when they are young - for example, an eight-year-old might get $8 a week - but increase it as they grow older and expect them to take on certain expenses such as phone costs and birthday presents.
Horror stories about kids and phone bills are less common now, but parents should check that they are monitoring their data use.
Not surprisingly, kids are often more on top of their mobile and streaming plans than parents. My daughter pointed out we should have a family Spotify account - which she could use, of course.
In 2018, the Financial Planning Association found 46% of kids received $10 to $39 a week and 14% got more than $40.
If the money automatically goes into their account and your kids don't see it, often they don't want to spend it. When I told my kids to take money out of their own savings, they become cautious spenders. Once their account balances are healthy, they can't pretend they don't have the money to buy what they want.
You can link a debit card to their bank account, but set up a couple of accounts so that your kids don't access all of their savings. If it is linked to all their money, it's too easy for them to go on a spending spree.
If you are knowledgeable about money and investing, you might want to buy your kids some exchange traded funds (ETFs) with their savings. You could talk about all the asset classes that the ETF holds if, for example, it is a Vanguard diversified product, or you can talk about the companies held by an Australian shares or international shares ETF.
Realising that asset values go up and down in the short term, but usually appreciate in the medium term,
is a fundamental lesson. As is the fact that diversification makes the swings and roundabouts less extreme. They are more likely to realise these things when their own money is committed.
Once kids turn 18, they are old enough to sign up for common debt traps: buy now, pay later (BNPL) schemes, and car and other personal loans with high interest rates.
I have a friend whose 20-year-old son went to a car yard and bought a car that was way beyond his means. Eventually he couldn't keep up the repayments and his parents had to pay off a high-interest consumer finance loan to bail him out.
There are now 14 BNPL providers in the Australian market. Twenty-five per cent of 18- to 24-year-olds use BNPL, the second highest user group after 30- to 39-year-olds, according to the Reserve Bank.
While the industry will tell you that BNPL is better than using credit cards, research by the corporate regulator ASIC shows that 21% of users are missing payments and half are aged 18 to 29.
In the 2018-19 financial year, missed payment fee revenue for all BNPL providers in the review totalled over $43 million, a growth of 38% compared with the previous financial year. Some consumers are in financial hardship with their BNPL bills and going without essentials such as meals.
More goes on necessities
One day you want your kids to be financially independent.
But they are under huge pressures and the wealth of households headed by someone under 35 has barely moved since 2004, according to the Grattan Institute's Danielle Wood and Kate Griffiths.
They say it is a myth that young people's spending habits and lifestyles are to blame for their stagnating wealth. They are spending less on non-essential items such as alcohol, clothing and personal care, and more on necessities such as housing, than they were three decades ago.
Young people are burdened by stagnant low wages and rising under-employment. A full-time job with benefits such as paid holidays and superannuation are highly competitive and getting harder to secure.
At the same time the bank of mum and dad is also under great pressure. The list of expenses - and amounts - that parents cough up is increasing.
According to the LSAC, parents are helping their kids with purchasing a car and the running costs, such as registration, insurance and fuel. There are also education fees, personal bills for phones and credit cards, fines, dental and medical costs, including health insurance, rent and utility bills.
And sky-high property prices mean many kids will never own a house, unless their parents can afford to help them.
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