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Pocket Money, Should Parents develop this habit at the tender age?


There are broadly two schools of thought when it comes to parents or relatives giving pocket money to children starting from a tender age. One group thinks that giving pocket money at a tender age may spoil the children as they are not mature enough to manage their own money. The other school believes that children ought to be given pocket money from a tender age because this act will make the children inculcate certain important values and make them gain knowledge of money management which will come in handy when the children grow up. While the first school of thought does not place trust in their children or wards, the latter not only trust their children but also trust their own ability to monitor the children's expenses and intervene if required.

The practice of how to give and maintain pocket money is very well described in a popular novel, Kane and Abel, authored by Jeffrey Archer. When Kane is 8 years old, his grandmothers agree that the time is ripe for the little boy to learn the value of money. As a birthday gift they start giving him pocket money - a dollar per week. One of his grandmothers buys him a ledger for 95 cents and deducts this from his first week's allowance and gives him 5 cents. After every 3 months the ledger is inspected and Kane is asked to produce a report on unusual transactions. Kane's grandmothers lay down broad guidelines for the boy - like investing 50% of his pocket money, spending 20% on himself, keeping aside 10% for charity and treat as savings the remaining amount. This habit is inculcated in Kane from the tender age of 8 and he grows up to be one of the richest young men in America. The above example may be fictitious but it surely emphasizes the benefits of inculcating the habit of money management in children.

Moreover, values like frugality, thoughtfulness, rational thinking are inculcated outside the home. When children manage pocket money, these values will be enhanced. It will also give them wisdom, something that comes only with experience. Great kings like Babur and Akbar not only managed finances but entire territories since a young age on their own with a little supervision from their parents, guardians and teachers. Asoka before becoming a young king of Magadha, was the Viceroy of Ujjain and Takshashila.

We see people managing money in different ways. One set of people tends to spend money as soon as they receive their salary on luxuries or household necessities. The other set of people are the ones who invest a part of their income as soon as they receive it and decide how much they are going to spend that month, leaving the remainder of their income for savings and charity. The latter is always the best way to manage money.

Also, the number of working women in India has roughly doubled in the past 15 years. In many households in urban India, both the parents have to manage home and office. Making children self sufficient is a win-win strategy for everyone in the family. Some competencies of children which otherwise remain hidden from parents will come into light when children manage their pocket money themselves. Years of managing his/her pocket money, making small mistakes and knowing the importance of investment and savings will eventually improve the child's knowledge about various financial instruments available. This will improve the India's savings ratio which has dipped to 30% now. Also, to correct children's behavior, reducing the flow of pocket money is a subtler way to modify child behavior while also sending a stern message that certain actions will not be tolerated.

Pocket money can teach children the effects of inflation, the importance of investments, the wisdom in savings and the satisfaction of managing money well. In the modern era, in a globalized world, there is a strong need for the younger generations to learn things faster, to be more sustainable and frugal than earlier generations. The act of giving small amounts of pocket money at regular intervals, adjusted for inflation on a yearly basis will go a long way in achieving the above mentioned ends.

The famous artist Gertrude Stein quoted, "Money is always there but the pockets change; it is not in the same pockets after a change and that is all there is to say about money." The sooner the children of the current and next generations understand this idea, the more frugal they will become. This will lead to a more sustainable and frugal world - a wish of the Father of our nation, Mahatma Gandhi.

Bharat