What your children’s pocket money could teach you about the effects of rising inflation
As the school holidays roll on, your kids might be stretching their pocket money thin.
Whether they’ve diligently saved up over the last few months to splurge in the summer, or perhaps they are the spend-as-soon-as-they-receive type, now is the time your kids will want to splash out on treats.
This summer, things might be a little different, though; your kids might find their pocket money isn’t stretching as far. With inflation standing at 9.9% according to the Office for National Statistics (ONS), they might run out more quickly than usual, and be returning in no time to beg for more summer spends.
While we all remember the shock and dismay of realising our 50ps will no longer cover the cost of our favourite ice cream, there could be a resounding lesson to be learned here.
Read on to find out what your children’s pocket money might teach you about the effects of inflation in today’s world – and how you can stay abreast of further inflationary impact.
Research shows children’s pocket money has not risen in line with inflation
If you are strict about your children’s pocket money, you may not be the only person feeling the pinch of the cost of living crisis.
Indeed, Moneyfacts reports that, while the price of children’s toys and games has increased over the years, pocket money has stagnated – and in some cases, even decreased. The report claims that in 2020, the average child’s weekly pocket money stood at £6.18, but in 2021, this figure dropped to £6.14.
Meanwhile, the ONS reports that, between June 2020 and June 2021, inflation rose by 1.9%. So, while children’s pocket money stagnated, inflation was climbing – meaning their after-school spends won’t have gone as far as before.
While it is natural to keep your children’s pocket money at a reasonable rate, this relationship between stagnation and inflation could ring true in your own life.
Indeed, if your salary has not increased since 2020, or has increased incrementally, you could be experiencing a similar situation to the one your children experience at the ice cream van.
With inflation at a 40-year high, your remuneration simply won’t go as far – and you could be feeling stressed about the number of Cornettos you can afford when compared with two or three years ago.
Luckily, the cost of living crisis won’t last forever. If you are worried about how your finances are being affected by high inflation, these three tips can help.
3 things we can learn from the “pocket money conundrum”
- Cash savings may not be a wise option in a time of high inflation
Your child’s piggy bank is, in its simplest form, a cash savings account. No matter what happens in the world, the money in the pig’s tummy remains the same. So, if prices rise, your kid’s cash won’t buy as many sweets – it’s as simple as that.
The one difference between a piggy bank and a cash savings account is that an easy access savings account may pay interest.
Nevertheless, interest on your cash savings may not match the rate of inflation, especially in today’s climate. According to Moneyfacts, on 21 September 2022, the highest rate of interest available on an easy-access savings account was 1.95%.
So, when compared with an inflation rate of 9.9%, your cash savings are still losing value by the day. In this instance, it could be wise to consult your financial planner for savings guidance, to ensure your wealth can grow as fruitfully as possible during this difficult time.
2. Investing can be a lucrative savings alternative
Although returns on your investments are never guaranteed, and past performance is not a reliable indicator of future performance, investing can be a lucrative alternative to cash savings in a time of high inflation.
Indeed, while investing typically incurs greater risk than cash savings, it can also reap more rewards. For example, most of the growth in your portfolio typically comes from higher-risk assets such as equities. So, your financial planner can help you to build a well-diversified portfolio aligned with your tolerance for risk, with the aim of ensuring your wealth grows in a way that will help you to meet your long-term goals.
Although it is important to have a cash savings account for emergencies and month-to-month spends, investing can grow your wealth more successfully over the course of your lifetime.
3. It’s still okay to spend your money
One temptation you may fall victim to during the cost of living crisis is over-saving. If you are worried about running out of money as energy, fuel, food, travel and housing costs rise, you aren’t alone.
However, underspending can mean you make life more difficult for yourself and your family while costs are high. While being careful is important, so is living the life you deserve.
Plus, your financial planner can use cashflow modelling to ensure you don’t run out of money, now or in the future. If you feel concerned about overspending while inflation is high, your planner can review your “piggy bank” and assess your financial habits to determine whether you’re on the right track.
Remember, the cost of living crisis will not last forever. Instead of worrying about it on your own, it could be more constructive to be proactive, working closely with us to get the peace of mind you need during this time of volatility.
By turning to us for guidance, you can still skip down the street when you hear the ice cream van music play, without worrying about how many Cornettos, Magnums or Twisters you can afford.
Get in touch
If your pockets are feeling emptier during this time of high inflation, get in touch. Email info@wkmwealth.co.uk or call 0116 403 0138.
Please note
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
