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How to show children the value of their pocket money

Independent financial adviser Simon Gibson has a brilliant idea for using pocket money to teach children some valuable lessons.

 

by Michelle McGagh on Apr 13, 2012 at 00:01

One of the great things about being a journalist is that people sometimes tell you things you aren't expecting!

I got a great example of this when I spoke to Simon Gibson, a director of Atkinson Bolton, a financial advisory firm in Newmarket, for my article on 'how to make your child a pension millionaire'.

We were discussing how it's all very well thinking about how you could, in theory, set your children up for life by contributing into a pension for them. But even if you can afford to do it, is there a danger in making things too easy for the young 'uns?

That's when Gibson mentioned his brilliant idea for pocket money.

Gibson believes that teaching children the value of money before handing over any sum of money will give them ‘wealth in terms of knowledge and financially’.

Four pots system

To do this, Gibson uses a ‘four pots’ system, which he has used with his own children, now aged 12, eight and five.

Gibson gives his children pocket money each Saturday: they are given £1 for every year of their age. The children then put the money into the four pots.

Pot 1: Charity

10% of every pound is put in the charity pot, which can be ‘spent at the local fete, put in the charity collector’s box or given directly to a charity’.

‘This shows children that there are people worse off than them,’ Gibson said.

Pot 2: Spending money

Another 30% of each pound is spending money, ‘which they can spend on anything they want, such as sweets and magazines’.

Gibson said his youngest child now realises he has to save for two weeks in order to get the magazine that he wants.

Pot 3: Something special

The next 30% of each pound goes towards saving for something special. Every six months Gibson allows the children to take the money in this pot to buy something that they really want.

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13 comments so far. Why not have your say?

Robert Lake

Apr 13, 2012 at 08:10

I ran a spreadsheet of credits and debits for my eldest son. This worked like a bank, he was away at school most of time. Often no cash would be transacted if I had paid for something for him personally. He would ask how much he was in credit to buy something he wanted and from time to time he would ask for a loan to buy something special he could not immediately afford. He learned that value of money, how to run a bank account, save and handle loans.

In his adult life he has been very good with money, I think our little spreadsheet was of great value.

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Danny Cox

Apr 13, 2012 at 10:51

Longer term savings (5 years plus) could go into the stock market via Junior ISA or bare trust designated account regardless of age.

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Dennis .

Apr 13, 2012 at 13:34

One of my relatives has three children in their 30's still living at home, this strategy could cost him over £100/week !

PS they are all working but haven't left home yet..

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Luella Keeley

Apr 13, 2012 at 14:14

Simon - what a great idea.I agree that it is really beneficial from a young age to start learning about money and also important to get the idea that saving for your goals to guarantee success is better than hoping for a handout whenever you need itThe beauty of your plan is that the child feels they have control of the situation and understand the need to wait until savings are acheived before buying. Great! I also talk to my children about the splitting of money into pots but have never verbalised it so clearly as this. I also love the idea of retaining monies to help other people with your charity pot. I am considering how I should adapt this idea for my own children. Thank you.

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Dennis .

Apr 13, 2012 at 14:41

When my kids were younger I instituted a scheme that my own parents used for me ie a weekly allowance which covers items like sweets and minor toys etc. then if they wanted something bigger (but sensible like a model boat kit or books or something "educational") they could come to me with a proposal and if reasonable I would buy it and negotiate a reduction in future earnings as a part contribution.

It seemed to work well, they are now in their late 20's and very careful with money.

However, I suspect the real issue here is what sort of a role model you are as a parent.

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Gatser

Apr 14, 2012 at 08:54

Some structure to pocket money is a great idea rather than just a "hand it over" mentality.

My method: Pocket money is "credited" to their cash book and interest added to daily balances each year. Encouragement given to transfer to higher rate building society accounts/ISA's.

The children can draw out of M&D Bank Instant Access account but they are shown the effect on their savings book.

It has worked well and they are now doing online transfers between accounts themselves.

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Michael Peters Fenwicks

Apr 14, 2012 at 08:58

Jolly Good Idea - Personally I recommend setting a trust before even children are born to kick start that overall saving while allowing other family members to contribute where possible.

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Rus

Apr 14, 2012 at 12:19

Great idea and a very good way to learn on how to balance your outgoings. It also teaches some key moral values of giving to charity caring for others and also saving for the long term. No questions about that.

I do question the pocket money side. Does this really teach the incoming side. Because when you get out in to the real world, no one is going to hand out money. So, I would modify the incoming bit to where the kids should work to earn thier pocket money. The weeks earnings then can be paid on a selected day of the week.

Also, the earnings bit needs to be carefully balanced with their duties and helping out. No kid should be paid for keeping their room tidy, going to bed, etc. Instead washing the car, moving the lawn, should earn money.

This really will teach the in side as well as the out side. It may sound harsh, but this lesson if learnt at adult age would even be harsher.

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Jamie Coats via mobile

Apr 14, 2012 at 12:30

I'll comment on the article rather than tell you how I do it via FamZoo...

Even though I use a system I really like the way this was structured and the phycology behind it which I think many comments missed... I will be adapting my own system around this great but of advice. Who said you can't teach and old dog new tricks...

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william Westlake

Apr 14, 2012 at 15:05

A good idea but does Simon really do this? I'd imagine that most people's lives are much too busy for all this messing around with pots. Apart from the value of money it appears to teach the little blighters that Dad is a bit of a twat.

I'm afraid I just hand it over and watch them waste it.

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Ryan McC

Apr 14, 2012 at 18:11

This is a brilliant idea!!

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Lee Clarke

Apr 15, 2012 at 13:20

well, (@William Westlake) I happen to know Simon really DOES do it, and it certainly impressed me the first time he told me about it. I'm now trying to get my own kids to do this with my grandchildren. I alo like the idea of saving for charity, which these days is a lot better than just waiting for the next "TV phonathon".

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Simon Gibson

May 25, 2012 at 16:45

As Lee says William, yes, I really do it!

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