Goodbye piggy bank, hello cashpoint: How to teach children to manage their money

Tanith Carey
The bank of mum and dad is going cash-free and hi-tech. But how does this affect children’s attitudes to money, wonders Tanith Carey  - Corbis RM Stills

It’s another text from my 12-year-old daughter, Clio. She’s at one of the cafés she regularly visits with her friends – where an apple juice and a bowl of noodles can easily set you back £15. Not surprisingly, there’s not quite enough money on her prepaid debit card to cover it.

Over the school holidays, messages from Clio and her 15-year-old sister, Lily – with pleas such as “Can you top up my card and take it off next week’s pocket money?” have become common refrains. Like a rising number of parents, my husband Anthony and I gave our girls banking cards designed for youngsters between six and 18 because we never carried hard cash ourselves. Rather than try to keep track of endless pocket-money IOUs for their £15-a-week allowance, a year ago we signed up to a card that, for a monthly fee, allowed us to transfer money over the phone. And we’re far from alone – services such as goHenry, Qwiddle and Osper (prepaid debit cards with a range of parental controls and apps to help keep an eye on spending) have been a hit in recent years.

But it got to the point where Lily and Clio were also racking up debts, which Anthony and I joked we weren’t expecting until they got to university. Would my daughters, I wondered, have had a more careful attitude to spending if they were still saving pounds and pence in a piggy bank or a Post Office savings book? Indeed, in an era when it’s never been easier to splash cash – one in 10 card transactions are now tap-and-go – it’s more important than ever for parents to exercise some tough love when it comes to pocket money.

According to Kirsty Bowman-Vaughan, children and young people expert at the Money Advice Service: “No matter what they choose to buy, children need the opportunity to make mistakes and learn from them. In the long run, it’s better they make mistakes when they’re young than when they’re an adult and the consequences are more severe.”

So how can I make Clio and Lily understand that, just because they have got used to using cards, money doesn’t appear out of nowhere?

Simonne Gnessen, a money coach and co-author of woman’s finance guide Sheconomics, says one way to teach them that cash does not grow on trees is to treat pocket money as their salary. “Tell them you’re going to simulate the real world by paying their allowance as a wage,” she says. “If they spend more, they will have to deal with the consequences.

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“If you must, charge them a small amount of interest so they realise it costs money to borrow money.”

So when I introduce the concept of a pocket-money overdraft – something my daughters had never heard of – it turns out that they are miraculously able to distinguish between what they need (food and the odd smoothie with their friends) and what they want (yet another Brandy Melville top) after all.

With the overdraft facility in place, the begging texts have dried up and they now have the motivation to “earn” small sums of money by helping around the house. The rewards appear soon after on their balance.

However, it turns out I’m in a minority when it comes to the old-fashioned notion of getting children to do chores for money. According to Experian, while seven out of 10 children get pocket money, only one in six is encouraged to earn it. One of them is Warren Shute, 42, from Wiltshire. His son, Olly, 12, and daughter Bella, 10, were given Osper cards two years ago because he and his wife, Nicky, 40, never had enough cash and it was easier to transfer the money online.

Each month, Warren, a chartered wealth manager at Lexington Wealth and founder of Lexo.co.uk, pays them one pound for each year of their lives – £12 for Olly and £10 for Bella. Warren says: “Their pocket money is for the chores they do, like helping with the recycling or emptying the dishwasher. If they fail to do their chores I would reduce their allowance, or offer them the chance to make it up. And, unsurprisingly, they always do.

“If the children run out of money and they can’t withdraw any more money on their cards, that’s a great lesson. If they run out, they run out. They then need to wait until payday, just like you or I. Experience speaks volumes.”

However, Julia Scott, 49, a music teacher who lives near Potter’s Bar, Herts, is more cautious about signing up her 11-year-old son for a debit card. “I’ve known Ivan to spend all of his £5 pocket money on crisps and sweets on the way home from school. So I think I’ll wait until I see more signs that he is mature enough to delay gratification.

“I also think he needs to touch, feel and visualise coins and cash first, and that will also help with his maths.”

With Lily and Clio, who are a little bit older, I’ve found a more grown-up approach to pocket money is paying dividends. For me, the pay-off is tidier rooms as well as homework and music practice done without complaint. And what parent wouldn’t fork out a bit more for that?