How Much Pocket Money Should I Give My Teen?

Pocket money is an alien concept in many households. In large parts of developing regions like India and Southeast Asia, pocket money is considered a perk enjoyed by children from rich households. In some cases, parents even take pride in proclaiming that they meet every need their child has, without restricting them to a fixed amount every month. Neither of these mindsets help raise financially literate adults.

The fact is, most young children will grow up to live off a monthly salary. So while there is no harm in thinking your little one will be the next Jeff Bezos and earn billions in their sleep, statistics suggest it might be wise to teach them how to live on a fixed monthly income.

Which brings us to the burning question, how much should I give my child as pocket money?

The answer, like most things in the universe, is relative.

Just because you received an allowance of Rs.500 in your youth, giving the same to your child decades later does not make sense, as that means you're not taking inflation into account.

On the flip side, copying Mr. Sharma who gives their 12-year-old an allowance equivalent to the salary of an entry level software engineer is probably not the best strategy either.

The best way to arrive at an ideal allowance is to set realistic benchmarks, and track expenses over time. A good starting point would be to ask others whom you think are doing a good job raising financially aware kids what their strategy is. This helps set an anchor amount for you to realistically consider.

Beyond this, start tracking the monthly expenditure of your child a few months before you intend to start giving them a monthly allowance. Do they require a certain amount of lunch money every month? Do they spend a fixed amount on buses/cabs? How much do you spend on food/shopping on their behalf per month? Looking at this data for a few months will usually give you a ballpark figure.

Once you arrive at a number you're comfortable with, it's usually a good idea to add a little extra. This way your child will have a surplus disposable income every month, which you can nudge them to to preserve/invest in order to help build a savings habit.

By following these basic guidelines, you can arrive at a reliable estimate of how much allowance you can give your child. Of course, make sure to monitor how they use it, and make adjustments as required.

Fun Tip: You can make this even more interesting by setting up a cohesive reward system based on how much your teen is able to save. It will make them understand that the savings rate is more important than the saved amount.

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