Pocket money basics
Generally, children learn their attitudes towards money from home.
Giving pocket money creates the opportunity to teach children about spending thoughtfully and saving – and even the consequences of misplacing money, losing it, betting or giving money away.
Regardless of the amount of money, giving pocket money to children as young as four or five years helps them to begin learning about money management.
Pocket money also helps teach children about having to make choices, saving up and waiting for things they want.
Letting your children make a few mistakes – like spending all their hard-earned savings, originally earmarked for a hot-wheels car, on fake tattoos instead – is part of the learning process. But it’s OK to put limits on what they spend their money on. For example, you might discourage them from buying bubblegum or lollies if that interferes with their appetite for nutritious food or you want to protect their teeth from decay.
Learning about money
Your child learns a lot by watching you and how you deal with money. Spending, saving, withdrawing or donating money – they’re all chances to teach your child more about the basics of money management.
As children get older, you can teach them about:
- the value of money: the relative price of things
- spending: accepting that money is gone once it’s spent
- earning: understanding that earning money can be hard work, but usually that’s the only way to get it
- saving: using short-term and long-term goals
- borrowing: understanding the importance of repaying borrowed money.
When to give children pocket money
Although research has shown that many parents introduce pocket money when their child is six or seven years old, there are no hard and fast rules.
Your child might be ready to try managing some pocket money if she:
- understands that you need money to get things from shops
- understands that spending all her money today means there is no more until the next payment
- needs money to buy school lunches or catch the school bus – in this case, pocket money can help your child plan daily spending so that money lasts for the whole week.
How much pocket money?
This depends on your circumstances and what you think is a reasonable amount. As long as your child understands how much he will get (and how often), he can start learning how to use the money well.
Base your decision on:
- what your family budget will allow
- what you expect pocket money to pay for – if you expect it to cover things like transport, lunches and savings, you might need to give a little more
- how much pocket money your child’s friends get.
What should pocket money cover?
Pocket money could cover any of the following things:
- bus fare to school
- lunch on Fridays
- a certain amount as savings
- spending as your child pleases
- donations to charity.
If you find that your eight-year-old wants to save for something special and has been saving responsibly, you might decide to add something extra.
Letting your child spend as she pleases is an important way for her to understand the concepts behind money, and to develop a sense of responsibility and independence.
Tips on giving pocket money
Here are some pocket money tips:
- Explain to your child what pocket money is for and what it’s not for.
- Pay what you can afford, regardless of what other parents (or your child!) might advise.
- Pay it on a set day.
- Set up a number of jars to help your child divide his money – for example, one jar for small things he wants now and one for saving towards bigger things.
- Put saved money in a dedicated container, such as a glass jar or a money box. Seeing the level grow helps highlight the achievement of being a good saver.
- Try not to give payment in advance.
- If pocket money is to cover entertainment, talk about what kinds of entertainment.
- Try not to supplement pocket money – it’s all about teaching your child to live within her means.
Pocket money and chores
Paying your children to do chores around the house is a complex issue. Linking children’s family contribution to pocket money might lead to unnecessary bargaining and interfere with the idea of contributing just because they are family members.
But no single rule is right for every family. If your children work well under these circumstances, go with it. You might even consider giving bonuses for extra chores if your child is saving for something special. If you do decide to pay pocket money for chores, explain tasks clearly so there is no confusion about what needs to be done and when.