Has the cost of living affected kids’ pocket money?

Many Aussies are feeling the pinch thanks to the rising cost of living but what does it mean for our kids? Effie Zahos shares her thoughts.

If you’re in the business of lending money like my 16-year-old son is, you would be relishing the fact that we are in the midst of the most aggressive interest rate hikes since 1994. Specialising in cash advance loans, he is making the most of higher interest rates. You could say business is booming for him.

For whatever reason I sometimes need cash and to avoid the hassle of going to an ATM, I will ask him to lend some (he often keeps a stash of cash at home for this very reason).

Of course, I pay this back, often on the same day (if not instantly via an online transfer) but he still insists on charging me an interest rate that resembles that of a payday lender. In fact, it would probably be cheaper for me to go to a payday lender.

But hey, beggars can’t be choosers. He has cornered the market (and by market I mean our house) and has customers (mum and dad) who are ‘desperate’ enough to pay.

It got me thinking about what impact rising rates and inflationary pressure has had on those who are paying their kids for services. Have parents dropped the hourly rate on chores or are kids asking for more as the cost of living keeps escalating? Has inflationary pressure trickled down to pocket money?

Beyond Bank recently conducted research on this very topic and these comments from parents who completed the survey sum up the sentiment well …

“I have had to reduce pocket money payments because the cost of living is so expensive now. I have had to reduce the amount of allowance, the kids don’t like it, but there’s nothing I can do.”

 “The cost of living has made it more of a challenge to stick with pocket money, but I want to stick with it so that my child understands how being paid to do work works. An employer could not simply fail to pay their employees one week because money was tight.”

“The kids know we are under pressure, and I think it is taking a toll on them also. Our child forgoes offers of things like lunch orders, and I know it’s because he is conscious of our current financial situation and the economic climate.”

The survey found that while, in most cases, pocket money has been left untouched, as many as 20% of parents have had to reduce pocket money payments due to cost of living pressures. A further 12% indicated that they now pay pocket money less frequently, whilst 2% stated that they have had to stop paying pocket money altogether.

When things are tight, it can be hard to know just how much to actually share with your kids about your financial situation. The majority of respondents (59%) said that whilst they don’t want their children to become anxious or stressed, the kids should understand a little about the cost of living pressures the family is under.

The remaining 41% were almost evenly split at opposite ends of the scale – 21% thought it was extremely important to shield children from the cost of living pressures and they don’t talk about it at all and 20% felt that it was important for kids to know that the family is finding it difficult to make ends meet and didn’t try to shield them.

I, personally, am with the majority here. I think talking about all money issues is essential but we need to do it without scaring them – it’s a fine line. The reality is that kids can be very perceptive and often pick up on things even if we don’t spell things out. When he was younger my son used to often remind guests to switch off the bathroom lights. No doubt that was a result of me complaining about our electricity bills!

So, have those money conversations. Chat to them about your grocery budget, get them to help you look for specials online, and show them how to shop around when they are making a purchase. But, above all, encourage them to get into the habit of saving. When they are younger, coins in a money box can cut it but when they start school, I suggest opening a savings account specifically for them.

Top savings accounts for kids

The table below shows the top-paying accounts for kids on Canstars database. Interestingly, despite six consecutive rate hikes, rates on kids’ accounts have not really moved. I’ve never worried too much about the rate. These accounts aren’t about becoming rich, they’re about teaching them important money lessons.

Top 5 kids’ savings accounts

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Source: www.canstar.com.au – 5/10/2022. Based on savings accounts on Canstar’s database available for children, with rates based on those available for a balance of $1,000. Table sorted in descending order by total interest rate, followed by base rate, followed alphabetically.

Often accounts for kids are set up as ‘bonus savers’. That means that to get the higher ‘bonus’ rate you need to meet certain conditions, such as making at least one deposit a month and no withdrawals. Three of the five accounts on this list are set up like that. The way I see it, these conditions actually reinforce the importance of saving little, saving often.

Here’s to me going to the ATM and no longer paying a lazy tax.

Effie

Compare Savings Accounts

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