The impact of the coronavirus crisis on pocket money

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With school starting in just a few days for most pupils in Luxembourg, the back-to-school is going to be a lot different than it ever was. Wearing masks in class, social distancing, regular hand washing etc… The new normal is upon us.

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14/09/2020 |
  • ING Gare

While some parents have lost their jobs due to the pandemic or are forced to work less, thus earn less, others are working from home without experiencing a pay cut… Even if for some of them, their income remains the same because they are lucky enough to work from home, in these times of uncertainty, are parents going to uphold the level of pocket money that they give their kids? Or will they stop giving pocket money all together in favour of other, more pressing expenses? 

1) The "well-known" benefits of pocket money

It is a well-known fact that receiving pocket money as a child will boost money management skills in adult years. In fact, an international study conducted by ING in 2014 among 12,000 people in 13 countries across Europe found that respondents who received pocket money as a child were more in control of their spending later in life and more likely to develop strong financial planning skills than those who didn’t. Similarly, more than half of people (55%) who received pocket money as a child regularly added to their savings, compared to 45% of those who didn’t.

Luxembourg ranked in the top 5 in Europe for percentage of parents who give pocket money. So as a rule, the Grand Duchy is one of the European countries were parents are most generous in terms of giving out pocket money. This may also be linked to the higher costs of living and higher salaries prevailing in Luxembourg. 

2) Just like other expenses, the share of cash is receding according to the latest 2020 survey

In recent years and as technology has evolved, consumers have consistently moved away from using cash to pay for things. This trend may have been accelerated by the recent pandemic. Cash used to be king, but slowly it is being dethroned. ING’s surveys on financial behaviours since 2017 have noted a steady decrease in people paying with cash across many day-to-day spending activities.

If we consider pocket money: in Luxembourg nearly two thirds (66%) of those who give pocket money to their kids still do it in cash in 2020. But this is a lower percentage than in 2017, when it was 86 percent. The rest may allow children to use payment cards, transfer pocket money to app-based systems or transfer directly to a bank account (see graph further below).

How do parents usually give pocket money?

The percentage of respondents giving non cash pocket money to their kids in Luxembourg has exploded between 2017 to 2020, going from 10% to 21%.

Even to pay for simple things as pocket money, the decline in cash is notable, as cash has to compete with ever expanding alternatives. The decline in cash goes on, even in pocket money, as seen here for Europe.

Even to pay for simple things as pocket money, the decline in cash is notable, as cash has to compete with ever expanding alternatives. The decline in cash goes on, even in pocket money, as seen here for Europe.

3) Cash in the aftermath of Covid-19

2020 has been a year like no other so far with the Covid-19 pandemic being one of the largest disruptors in world history. Cash has been affected too and as a consequence, pocket money also.

It is still too early to tell what impact the pandemic will have on economies and way of life. For now, it has not been big enough to shift attitudes completely away from cash. While day to day cash use is undoubtedly decreasing, it is happening slowly. Cash may no longer be king, but it is still royalty. 

4) Learning from the crisis

The pandemic is far from being over and the tendency to go cashless will prevail even for pocket money.

Getting away from cash is one thing but should not be the only take away from the pandemic: with 56% of Luxembourg residents saying they will pay more attention to building an emergency fund and 17% stating they will have to tap into their emergency fund due to the coronavirus crisis, educating youngsters on saving for a rainy day will probably be top of the list of reasons for giving pocket money.

5) Trend towards more pocket money?

It remains to be seen whether the crisis will affect the long-term trend towards more pocket money at an earlier age.

Between the ING survey from 2014 and the one from 2019, the percentage of parents giving pocket money regularly has increased by 5%, and those giving it directly into a bank account has almost doubled (from 8% in 2014 to 14% in 2020.

In conclusion: the Covid crisis as an opportunity?

The Covid crisis is an opportunity to highlight the value of a rainy-day fund, especially if the family finances are strained or its economic outlook is uncertain. This is also what pocket money is all about.

The complete presse release here

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