Canadians are still divided on the great spending money debate. According to a recent survey by Mydoh, a money management app for teens owned by broadcaster RBC, nearly half of Canadian parents give their children spending money, while the other half do not. The survey also found that many parents are unsure if they are using their spending money effectively.
Although there is not necessarily a uniform approach to allowances, Yahoo Finance Canada spoke to two financial experts about some of the best practices.
Because cost can be a significant hurdle, parents should first ask themselves whether they can afford to give their children an allowance, says Jessica Moorhouse, a certified financial advisor in Toronto. If the answer is yes, allowance can be an “amazing financial teaching tool,” she says.
“The most common thing I hear from adults is, ‘I never learned about money in school, I never talked to my parents about it, and then when I started making money, I made a lot of really expensive mistakes,'” Moorhouse said. Yahoo Finance Canada. “It’s really about teaching your kids how to manage money now so they can take those lessons with them as adults.”
Moorhouse says pocket money is essentially the same system that children will experience as adults when they start earning money. And they will need to manage their money in similar ways, for example by setting savings goals for specific purchases.
So why not start at a young age?
“If you can develop these habits, the learning curve won’t be as extensive as you make more money and your finances get a little more complicated,” Moorhouse said.
The ABC of allowances
Moorhouse has three guidelines for parents who want to give their children pocket money. She calls them the ABCs: autonomy, involvement and consistency.
Although the Mydoh report found that nearly eight in 10 Canadian parents believe their children should be required to save some of their allowance, Moorhouse said this approach could “backfire.”
Your advice? Give them some autonomy and let them make mistakes because that is one of the best ways to learn.
At the same time, a certain amount of educational work needs to be done, she says.
Robin Taub, a Toronto-based accountant who wrote a book on financial education for young people, is The smartest investment, recommends teaching children how to divide their pocket money between saving, spending, sharing and investing.
“A young child needs some guidance,” Taub said in an interview with Yahoo Finance Canada“Once they’re teenagers, … you’re going to hold back a little bit. Because they’re capable of making their own decisions, and you want them to live with the consequences of their choices and learn that money is a limited resource.”
Next, says Moorhouse, it’s helpful to involve children in setting the parameters for pocket money to ensure they’re on board and to avoid confusion. Topics to discuss include whether or not pocket money should be tied to chores and who’s responsible for buying what.
“Really make sure they feel like they are part of the equation and not just being told what to do,” she said.
Finally, Moorhouse stresses the importance of consistency. Not giving your child pocket money when it was agreed upon can breed mistrust and lead to complicated money management, she notes. Likewise, she strongly advises against withholding pocket money as a disciplinary measure, pointing out that similar tactics are used in toxic romantic relationships.
“We don’t want to put that into the equation,” Moorhouse said. “Either they’re just rebelling against money in different ways, or they’re attracted to a partner who displays some of these behaviors that they recognize from their past.”
How much should you give your children?
According to the Mydoh report, on average Canadian parents start giving their children pocket money when they are between nine and 11 years old. However, Taub says most children are ready by around age five if they want to buy something at the store, for example.
“It’s nice for them to have a little money of their own and to get used to the fact that the money doesn’t come out of a hole in the wall,” she said.
She suggests starting with small amounts.
As a rule of thumb, each year of your child’s life should be between 50 cents and $1 per week, she notes. So a 7-year-old might get $7 per week.
“Given inflation, you might give them $10 a week now,” Taub joked.
Ultimately, it’s a personal decision that depends on what the family can afford, she says. For young children, Taub recommends starting with cash and using a piggy bank with multiple compartments before moving to a digital system when the kids are old enough to understand the concept.
Farhan Devji is a freelance journalist and writer based in Vancouver. You can follow him on Twitter. @farhandevji.
