Overview
Spending Money—also known as pocket money—refers to a small amount of cash earmarked for incidental or discretionary expenses. These expenses are typically minor, non-essential costs and can vary from person to person. Spending money is an informal and flexible financial resource, set aside separately from essential living expenses and savings.
Examples
- Weekly Allowance: Parents might give their children a set amount of money each week, known as allowance, for their personal use.
- Travel Funds: During a vacation, people often allocate a portion of their budget for small purchases, souvenirs, or local delicacies.
- Office Petty Cash: Companies often maintain a petty cash fund to cover minor office expenses such as coffee, snacks, or small supplies.
Frequently Asked Questions
What is the difference between spending money and savings?
Spending money is intended for immediate, minor expenses or discretionary purchases, while savings are set aside for future goals, emergencies, or significant expenditures.
How much should one set aside as spending money?
The amount varies depending on personal financial conditions and spending habits. It’s wise to create a budget to determine a reasonable amount that won’t affect essential expenses or savings goals.
Can spending money include digital payments?
Yes, spending money can include both cash and digital forms of payment such as prepaid cards, e-wallets, or low-balance debit cards.
Why is it called ‘pocket money’?
The term ‘pocket money’ originates from the idea of keeping a small amount of cash in one’s pocket for convenience and small purchases.
How can children learn from receiving spending money?
Giving children spending money as an allowance can teach them financial responsibility, the value of money, budgeting skills, and the importance of saving.
-
Allowance: Money given to a child by parents on a regular basis, intended for the child’s personal spending.
-
Discretionary Income: The amount of an individual’s income that is left for spending, investing, or saving after taxes and necessities are paid.
-
Petty Cash: A small amount of cash kept on hand by a business for minor or incidental expenses.
-
Budgeting: The process of creating a plan to spend your money, assigning specific amounts to different expenses or savings categories.
Online References
Suggested Books for Further Studies
- Smart Money Smart Kids: Raising the Next Generation to Win with Money by Dave Ramsey and Rachel Cruze
- The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money by Ron Lieber
- The Financial Diaries: How American Families Cope in a World of Uncertainty by Jonathan Morduch and Rachel Schneider
- Your Money or Your Life: 9 Steps to Transforming Your Relationship with Money and Achieving Financial Independence by Vicki Robin and Joe Dominguez
Fundamentals of Spending Money: Personal Finance Basics Quiz
### What is spending money primarily used for?
- [x] Minor or discretionary expenses.
- [ ] Major purchases and investments.
- [ ] Mortgage payments.
- [ ] Utility bills.
> **Explanation:** Spending money is primarily used for minor, non-essential, and discretionary expenses.
### How can children benefit from receiving spending money?
- [x] Learning financial responsibility.
- [ ] Increasing their weekly income.
- [ ] Relying solely on it for all their needs.
- [ ] Avoiding any form of financial dependency.
> **Explanation:** Receiving spending money can teach children financial responsibility, helping them understand budgeting and the value of money.
### What is another term used interchangeably with spending money?
- [x] Pocket money.
- [ ] Salary.
- [ ] Grant.
- [ ] Scholarship.
> **Explanation:** Spending money is often referred to as pocket money, reflecting its purpose for incidental expenses.
### Which is NOT a characteristic of spending money?
- [ ] Intended for discretionary use.
- [x] Set aside for long-term savings.
- [ ] Used for small current expenses.
- [ ] Often given to children as an allowance.
> **Explanation:** Spending money is not set aside for long-term savings; it is intended for immediate and minor expenses.
### Does spending money only include physical cash?
- [ ] Yes, only physical cash.
- [x] No, it can include digital forms of payment like prepaid cards or e-wallets.
- [ ] Only includes checks.
- [ ] Restricted to assets and investments.
> **Explanation:** Spending money can include both physical cash and various digital payment methods like prepaid cards or e-wallets.
### What is a common method parents use to provide spending money to children?
- [ ] Monthly billing statements.
- [ ] Educational grants.
- [x] Weekly allowance.
- [ ] Tax refunds.
> **Explanation:** Parents commonly provide spending money to children through a weekly allowance.
### How is spending money different from a budget?
- [x] Spending money is a part of a budget allocated for minor expenses, while a budget is a comprehensive financial plan.
- [ ] Spending money replaces the need for a budget.
- [ ] A budget is used for small purchases.
- [ ] Spending money and a budget are identical concepts.
> **Explanation:** Spending money is a portion of a comprehensive budget, specifically allocated for minor and discretionary expenses.
### Why is it important to set a limit on spending money?
- [ ] To increase overall expenses.
- [x] To avoid financial mismanagement and ensure essential expenses and savings are prioritized.
- [ ] To maximize discretionary spending.
- [ ] To limit financial growth.
> **Explanation:** Setting a limit on spending money helps avoid financial mismanagement and ensures that essential expenses and savings are not compromised.
### Can companies have spending money?
- [x] Yes, often through a petty cash fund.
- [ ] No, companies only use formal budgets.
- [ ] Only in the form of employee salaries.
- [ ] Restricted to non-profits.
> **Explanation:** Companies often maintain a petty cash fund to cover minor, incidental expenses, similar to the concept of spending money.
### What practice can help in managing spending money effectively?
- [x] Budgeting.
- [ ] Ignoring expenses.
- [ ] Spending without tracking.
- [ ] Waiting for expenses to accumulate.
> **Explanation:** Effective budgeting can help in managing spending money by ensuring that there is a clear plan for discretionary expenses.
Thank you for exploring the essentials of spending money and participating in our engaging quiz. Continue enhancing your financial literacy for smarter personal finance management!
