Pocket money for kids: A tool for financial education?

I did give you a bit of a heads up a couple of weeks ago, that a conversation about pocket money was coming.  Don’t shoot the messenger, I just want to give you some food for thought, I’m certainly not telling you what to do with your own children.

As always, full disclosure, my parents opted to not give me pocket money.  If I wanted something and it fit within their definition of ‘educational’ I generally got what I was asking for.  If it didn’t, I could do jobs, like cleaning the car, to earn a bit of money that way. I was also fortunate enough to have a comparatively well-paid part-time job at the age of 15, so I was self-sufficient at a fairly young age.

Giving kids pocket money can be a tricky decision for many families. It raises important questions about when to start, how much to give, and whether it should be tied to chores. On the other hand, pocket money can also be a valuable tool for teaching your children financial skills, helping them understand the importance of making informed decisions, saving, and spending wisely.

The nitty-gritty is, before you even think about talking to your children about pocket money, is to make sure that as parents, you are on the same page.  There’s one fundamental question you must work through first: Do you believe in giving pocket money?

There could be some very interesting conversations and views that you have from your own childhood that come into play here. There may be a few hurdles and things in your own money story you need to sort out first.

Then if you do decide to give pocket money.  Why are you doing it? Is it to reward them for chores that they do? Or is it based on something else? How it is going to work in theory and the practical implementation.

Don’t implement pocket money until you have these question sorted out between you.  If you are struggling with them, then my advice is to start with your family’s values.

What is it that you want to teach your children, not only about money, but about the type of person you want them to be in life.  Use your values as the guide as to whether you pay pocket money and how it might be earned.  Each family is going to be different, and you want to have something in place that works for your family and not just copy what someone else is doing.

I’m going to assume that you’ve opted to pay pocket money.  There will be a multitude of reasons why you’ve chosen to do so, not the least will be to teach your children about money – how to spend it, how to save and perhaps why they might give some away.

Here’s a guide to help you navigate the pocket money journey.

When should you start?
There’s no universal “right age” to begin giving children pocket money, but a reasonable starting point is when they start school and learn basic maths. They can grasp simple financial concepts like saving and spending at this stage. As they grow older, you can adapt discussions to their level of understanding, introducing more complex ideas like budgeting and financial goals.

How much should you give?
The amount you give should be tailored to your family’s finances and the intended purpose of the money. Are you giving pocket money to teach them about saving, to cover small expenses like school snacks, or for something larger? A common approach is to provide $1 per week for each year of your child’s age, though this may vary based on your financial situation and inflation.

Cash or digital?
For younger children, giving pocket money in cash helps them physically see and understand the value of money. As they grow older, especially as the amounts increase, you may find it more convenient to switch to digital options, like bank transfers. Even so, using a spreadsheet or visual tool for younger kids can help them grasp the value of digital money. There are some great Apps available to help with this transition.

Should pocket money be tied to chores?
This is a common debate among parents. Some prefer to link pocket money to chores to instil a work ethic, while others see chores as part of contributing to family life, separate from financial incentives. If you tie it to chores, be clear about the expectations and ensure there’s a system for rewarding or withholding money based on performance.

Teaching financial skills and setting goals
Pocket money is a great way to introduce kids to setting and achieving financial goals. Start small—saving for a video game or toy—and as they get older, introduce more sophisticated concepts like emergency funds or saving for bigger goals. For example, if your child takes public transport, you might help them set up a small emergency fund for unexpected taxi rides.

Shopping and spending lessons
Once your child has their own money, shopping becomes a great learning opportunity. It’s about finding bargains and understanding emotional responses to spending. Teach them to evaluate whether purchases, such as toys or experiences, are worth the excitement they bring. Discuss what they value and how long that satisfaction lasts.

Consistency and discipline
This is where it gets hard as parents. We need to be disciplined and strong ourselves, and not cave into the temper tantrums when Suzie can’t go to the movies as she has already blown her pocket money on something else that seem really important at the time. This is part of learning the consequences of overspending.

Consistency is another key when managing pocket money. Pay it on the same day each week to establish a routine, just as they will experience in the working world.

Evolving the system as kids grow
As your child matures, their understanding of money should evolve too. When appropriate, transition from cash to bank accounts and adjust their financial responsibilities accordingly. Keep the dialogue open and be prepared to change the system as they grow in economic understanding.

There’s no one-size-fits-all solution for giving children pocket money, but the right approach can be a fantastic tool for teaching financial responsibility. By helping your child set goals, understand value, and manage their money, you’re setting them up for future financial success.

All of this does of course come back to one very important question, are you financially healthy yourself to teach your children to be financially healthy too?