Not Clancy of the Overflow Points of Interest – Autumn 2015

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Lauren, you still owe me $50

This article, by Justin Baiocchi, was originally published in The Northern Daily Leader on 23 May 2015.

For many parents the topic of pocket money is a vexing one. How much to give, if at all? How often? Should it be a handout, or should it be payment for completion of chores? At what age does it start and when should it end? For some unlucky parents of course there never is an end – for you I have no advice and only my commiserations. Some parents may try and use the concept of pocket money to foster an appreciation of money and perhaps learn the lessons of financial discipline. This doesn’t always work, as differing attitudes to money are as common among children as they are among adults. My sister, for example, seemed positively allergic to money, and did everything she could to distance herself from it, usually through spending it on shoes, clothes and makeup. I, on other hand, saved my pocket money carefully, until it got to the point where my sister would approach me for loans. It took some time before I realised, just like my parents, that loans made to immediate family members are loans never repaid.

The most sensible approach to pocket money that I’ve come across came from a financial adviser and columnist based in the US. His approach was based on giving each of his children three different piggy banks, with each separately labelled ‘Giving’, ‘Spending’ and ‘Investing’. Any pocket money given to his children had to be split into thirds, spread over the three piggy banks. The ‘Giving’ piggy bank was money set aside for assisting others less fortunate, primarily through charitable donations. The ‘Investing’ piggy bank was money which had to be spent on long term investments such as shares or savings accounts. The ‘Spending’ piggy bank was money which could be spent by the child on whatever they liked, no matter how wasteful or ridiculous. The intention was to instil in each child the concept of philanthropy and using their good fortune to help others; to cultivate discipline with regards to always making sure to save some of what you earn and finally, to show that money can be fun too and even spent frivolously, as long as such spending is kept under control. While these rules were intended for children, there’s really no reason why adults can’t adopt them too. A financial plan based on giving a third, saving a third and spending a third may sound simple, but it’s probably going to be highly effective too. And remember, there’s no piggy bank labelled ‘Loans repaid by siblings’, because loans like that just don’t exist!