What do children spend their pocket money on?

Some things about pocket money haven't really changed in 30 years. 

The most popular day for receiving it is on Saturday, according to a survey of more than 25,000 UK parents and children released this week. Tidying your room is the most common chore demanded by parents before any money changes hands (how well I remember being shrieked at to do this on Saturday mornings). And incredibly, children are most eager to spend their money on books, magazines and sweets — cue happy memories of Jackie magazine and Mojo penny chews, in my case. 

But any nostalgic feelings about pocket money end here. 

This study of the financial habits of four to 14-year-olds in 2019 is not based on cash transactions, as no notes or coins are actually being put into pockets. Instead, the data has been gleaned from parents who use Rooster Money's app and preloaded contactless card to teach children as young as four how to navigate our increasingly cashless society. 

You might find this shocking, but closer examination of the top items bought by children using their pocket money helps explain the rise of digital payment cards aimed at a younger age group. 

While books and magazines were ranked in first place, six of the top 10 purchases that children made in 2019 were gaming-related. If you are a parent, you won't need me to tell you what Fortnite, Roblox or Pokemon are (if you are not, they are app-based games that can be played on smartphones, tablets or computer consoles). 

All have their own virtual currencies, which your child may be more familiar with than pounds and pence. They are used to fund in-app purchases worth hundreds of millions of dollars a year. 

Fortnite has "V-bucks" which can be used to buy add-ons including virtual outfits, weapons and animations for your child's avatar. The current rate of exchange on 1,000 V-bucks is $9.99, or £7.99 in the UK (just as in real life, the rate gets better the more you buy). 

Pokemon has PokéCoins, which can be used to buy items including egg incubators, and Roblox has Robux, which can even be converted into real money if you are over 13 and have access to an adult's PayPal account. 

Top things to spend on in 2019 Position Purchase 1 Books & Magazines (+1) 2 Sweets (-1) 3 Lego (-) 4 Presents (-) 5 Roblox (+5, highest climber) 6 Fortnite (new entry) 7 PlayStation (new entry) 8 Xbox (-3) 9 Pokemon (-2) 10 Apps (-4)

The problem with these virtual currencies is that you generally need an adult to buy them for you. If that adult is foolhardy enough to save their card details and not enable parental controls, their gaming-mad children could rack up a bill for hundreds or even thousands of pounds, with only some virtual pickaxes to show for it. 

While most high street banks won't give children an account with a payment card until the age of 11, Rooster and competitors such as GoHenry, Nimbl and Osper make this possible for children as young as six.

"Banks are not serving this younger age range, who want to spend money on online games like Fortnite," says Will Carmichael, Rooster's chief executive. 

According to an Ofcom study in 2016, just over one-third (34 per cent) of preschoolers aged between three and four have their own device such as a tablet or games console, and one in three tweens (eight to 11s) and eight in 10 older children (12-15s) have their own smartphone. Other studies have shown children's financial habits are formed by the age of seven. 

Mr Carmichael believes that by giving children the opportunity of spending money on their own card, they will better understand its value (crucially, they cannot spend more than they have available). 

The key feature of such cards is parental control. If children try to make a one-off online purchase on a Rooster card, both the parent and child receive a notification via the app. There is no three-digit CVV number on the back of the card; one needs to be generated via the app to complete the purchase. "Every time there's a purchase, there's the potential to have a conversation," says Mr Carmichael. "The big challenge is making cash tangible in a virtual world."

All of the new generation of payment cards automatically block payments a child attempts to make to merchants with an over-18 merchant code, such as off licences and betting shops. Osper will also block payments made to online dating websites. 

Some parents might think their children are too young to be given the means to make online payments, but I like the ability of these apps to expose young people to the virtual world with a parent looking over their shoulder. If they make a mistake, lessons can be learned. And it does encourage conversations about money, which will prove useful as their financial education continues.

However, this learning experience also costs parents money; typically £25 to £30 a year, depending on the app, plus some charge extra for loading money above a certain limit or spending money overseas. 

As well as making it easier for children to spend money, pocket money apps can also encourage them to earn it and save it. 

Rooster's survey found the average weekly pocket money given in 2019 was £5.25, an inflation-busting 7.5 per cent higher than 2018. Most of these apps allow parents to attach conditions such as completing specific tasks before this allowance is credited. Alternatively, children can earn extra credit for chores such as mowing the lawn (the top earner at an average £2.86) or washing the car (£2.62) — assuming they stop playing Fortnite for long enough to do so. 

Top earning chores of 2019  Position Chore/average reward 1 Mow the lawn, £2.86 2 Washing the car, £2.62 3 Gardening, £2.08 4 Washing windows, £1.53 5 Cleaning bathroom, £1.28 6 Cleaning kitchen, 99p 7 Hoovering, 98p 8 Dusting, 98p 9 Helping make dinner, 93p 10 Clean bedroom, 92p

As well as having to pay for these apps, the second biggest disadvantage is that they don't pay any interest on children's savings. 

Most traditional children's bank accounts will still pay something (the best rate is currently 3 per cent with Santander, but you'll need a minimum of £300 in the account to earn this). 

Cheekily, Rooster lets parents set their own interest rate on the savings pot within its app — although parents have to self-fund this. 

The average interest rate parents agree to pay is a stonking 9 per cent. Perhaps this explains why the average child saved 38 per cent of their weekly pocket money last year? Predictably, there was a strong tech flavour to the items named as savings goals, although Lego sets retained the top spot in 2019. 

Top things to save for in 2019 Position Purchase 1 Lego sets (-) 2 Phones (-) 3 Nintendo Switch (+1) 4 Holiday money (-1) 5 Books and magazines (-) 6 Bikes (+2) 7 Pokemon (new entry) 8 PlayStation (+2) 9 Tablets (-) 10 Xbox (-4)

It turns out that nine-year-olds are the most entrepreneurial (they're the most likely to generate money by selling old games, books and toys, averaging more than £22 per sale). Despite their efforts, most UK high street banks won't want to know them as customers for another two years.

If we want our children to navigate the online world of virtual money with confidence, innovation in the pocket money space should be more widely encouraged. The ease of contactless spending, the practice of "buy now pay later" and the rise in online fraud will be waiting there to trip them up, so they need all the digital financial education they can get their hands on. 

Claer Barrett is the editor of FT Money, and a financial commentator on Eddie Mair's LBC drive-time show, on weekdays between 4-6pm: claer.barrett@ft.com; Twitter @Claerb; Instagram @Claerb

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