Pocket money basics
Giving pocket money to children as young as four or five years helps them start learning about money management. For example, when children get pocket money, they have to make choices about spending or saving it. And if they’re saving up, they have to learn about waiting for things they want.
Pocket money can also help children learn about the consequences of losing money, giving money away and even gambling. Letting your children make a few mistakes – like spending all their hard-earned savings on fake tattoos instead of a hot-wheels car – is part of the learning process.
It’s OK to put limits on what your children spend their pocket money on. For example, you might discourage them from buying lollies if that interferes with their appetite for nutritious food or you want to protect their teeth from decay.
When to give children pocket money
There are no hard and fast rules about when to start giving children pocket money.
Your child might be ready to try managing some pocket money if she understands that:
- it’s important to save money, and not spend it all
- she needs money to get things from shops
- spending all her money today means there’s no more until the next payment.
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’ll get (and how often), he can start learning how to use the money well.
You can base your decision about how much pocket money to give on:
- what extra chores around the house you expect your child to complete
- 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.
What should pocket money cover?
Pocket money could cover any of the following things:
- saving for a special game or toy
- special outings like the movies
- gifts for siblings and extended family members
- lunch purchased at school once a week.
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 manage her pocket money is an important way for her to understand the concepts behind money, and to develop a sense of responsibility and independence.
Pocket money and chores
Paying your children to do chores around the house is a complex issue. Linking children’s chores to pocket money might lead to bargaining about how much chores are worth. It might also interfere with the idea of doing chores just because everyone in the family has a responsibility to help.
But no single rule is right for every family. If your children feel motivated by doing chores for pocket money, go with it. You might even consider giving bonuses for extra chores if your child is saving for something special.
If you decide to pay pocket money for chores, explain chores clearly so there’s no confusion or bargaining about what needs to be done and when.
Tips on giving pocket money
Here are some pocket money tips:
- Explain to your child what pocket money is for and what it isn’t for.
- Pay what you can afford, regardless of what other parents (or your child!) might say.
- Pay it on a set day.
- Set up some 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, like a money box. As the level grows, it highlights the achievement of being a good saver.
- Try not to give payment in advance.
- If pocket money is to cover entertainment or food, agree on what kinds of entertainment are OK.
- Try not to supplement pocket money – it’s all about teaching your child to live within her means.
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
opportunity cost: understanding that when you use money to buy something, you give up the opportunity to buy something else with that money.