Pocket money for children—is giving a monthly allowance a good idea? What do financial advisors suggest?

Pocket money for children: Parents often find themselves muddled in deciding whether or not to provide a monthly allowance or pocket money to their children. If the answer ticks the yes box, deciding on the amount again raises concerns for parents.

On the one side, people agree that giving children a monthly allowance can be a beneficial way to teach them about financial responsibility and help them learn valuable money management skills. On the flip side, it also raises concerns about usage. Here's what financial advisors suggest:

Is giving pocket money a good idea?

Adhil Shetty, CEO of Bankbazaar.com, believes that giving a monthly allowance to children is a good way to teach financial responsibility. It mirrors real world scenarios where they learn to manage their budgets. "This practical experience is invaluable and fosters an understanding of saving and spending wisely," says Shetty.

As per Mayukh Datta, CBO, ITI Mutual Fund, it is an excellent way to teach children the importance of money, and it would help them become responsible and also to save.

What are the considerations that a parent should keep in mind while deciding on the above?

Shetty recommends that parents should consider their child's maturity, the family's financial situation, and what the allowance is expected to cover as important aspects while dealing with finding an answer to the above question. It's important to set clear expectations about how this money can be used. Discussions around money should be encouraged. Remember that your child will mimic you. If your money habits are sound and sensible, your child is highly likely to have similar habits, he adds.

According to Datta, the decision should be based on two factors:

-what household chores do you expect your child to do
-what your family budget will allow

Image: Freepik/ Representational image

How parents can decide on the pocket money amount they should give to their children?

Shetty says that it depends on the financial capacity and the costs of the child's usual expenses. He adds that it's beneficial to align the allowance with your child's needs and your household savings goals. You must promote a balance between immediate gratification and long-term planning, Shetty highlights.

How financial literacy can help children understand the importance of pocket money?

Shetty says that financial literacy helps children understand the value of money. "Understanding the worth of their allowance in the context of these concepts can motivate more thoughtful spending and saving habits, laying the foundation for sound financial decisions in the future," Shetty adds.

While highlighting that it teaches them financial literacy, Datta lists the following advantages:

• Sense of financial independence
• Money management
• Financial planning and savings
• Making them future-ready
• Raises respect towards their parents, the bread earners
• Sense of maturity
• Personality development and various others.

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