Pocket money basics
Giving pocket money to children as young as 4 or 5 years helps them start learning aboutthe value of money and money management.
For example, when children get pocket money, they have to make choices about spending or saving. And if they’re saving, they’ll learn about waiting for things they want.
Pocket money can also help children learn about consequences, including the consequences of losing money or spending it unwisely. Making a few mistakes is part of the learning process for your child.
Children learn a lot about money management by watching how you use money. For example, if your child sees you setting a spending limit or shopping around for the best price, you help your child learn about sticking to a budget.
When to give children pocket money
There are no hard and fast rules about when to start giving children pocket money.
Children might be ready to try managing pocket money if they can understand these messages:
- They need money to buy things.
- It’simportant to save money and not spend it all.
- Spending all their money today means there’s no more until the next payment.
Learning about money and developing financial literacy from a young age can help children develop responsible money habits and attitudes for later in life. And managing pocket money is a great way for your child to start developing a general sense of responsibility and independence.
How much pocket money?
This depends on your circ*mstances and what you think is reasonable. As long as your child understands how much they’ll get and how often, they can start learning how to use the money well.
You can base your decision about how much pocket money to give on:
- what household chores you expect your child to do
- what your family budget will allow
- how old your child is – for example, you might give a 5-year-old $5 per week and a 7-year-old $7 per week
- what you expect pocket money to pay for – for example, if you expect it to cover things like transport, lunches and savings, you might need to give a little more.
What can pocket money cover?
Pocket money can 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
- taking public transport
- buying lunch at school once a week.
As your child gets older, you can give them more responsibility about what they need to use their pocket money for. For example, they could become responsible for paying their phone bill.
You might like to divide your child’s pocket money into separate jars, bank accounts or ‘pots’ within bank accounts for different purposes. For example, these might include one jar or account for spending on small things your child wants now, one for saving towards bigger things, and one for gifts or donations.
Pocket money and chores
There are no rights and wrongs when it comes to paying children for doingchores around the house.
Some families feel that everyone should help with chores just because everyone is a member of the family, not because they’re being paid. Also, linking children’s chores to pocket money might lead to bargaining about how much chores are worth.
On the other hand, some families feel that pocket money should be earned and not just given. And getting pocket money can motivate some children to do chores.
If you do decide to link pocket money to chores, it’sa good idea for the chores to be regular – for example, tidying up the bedroom daily or weekly or putting out rubbish bins each week. This gets your child in the habit of working to earn money.
If you choose 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 tips for giving your child pocket money:
- Explain to your child what pocket money is for and what it isn’t for. For example, if pocket money is to cover entertainment, agree on what kinds of entertainment are OK. Depending on your child’s age, you might give your child some flexibility in using their pocket money.
- Negotiate guidelines about how much money can go into saving, spending and donating. For example, you and your child might agree that your child puts 50% of their pocket money into savings, 40% into spending and 10% into donating.
- Pay what you can afford, regardless of what other parents (or your child!) might say.
- Pay pocket money on a set day. You might choose to pay weekly, fortnightly or monthly. Try not to miss a payment.
- Deposit your older child’s pocket money directly into their bank account. This can help them get familiar with digital money and prepare them for using an ATM card.
- Try not to supplement pocket money or pay in advance. If you do, consider making a repayment plan with your child to teach them about borrowing and lending money.
Children might feel motivated to save if they can see their money ‘growing’. Putting saved money in a box or jar means your child can watch the level get higher. Many banks have features on their website or app that show savings growing over time.
Learning about money
Your child learns a lot by watching how you deal with money. Pocket money can teach children about:
- Value: this is the relative price of things.
- Spending: money is gone once it’s spent.
- Earning: earning money can be hard work, but usually that’s the only way to get it.
- Saving: this is putting money aside for short-term and long-term goals.
- Borrowing: if you borrow money, you have to repay it.
- Opportunity cost: when you use money to buy something, you give up the chance to buy something else with that money.
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