Pocket money – everything you need to know
Pocket money can be a great way for teaching children the basics of managing money, teaching them to budget and save for items they want. However, how much pocket money you give, what age they receive it and whether you give it at all, totally depends on your family circumstances and values.
Pocket money 101
Giving children pocket money helps them start learning about the value of money and simple money management. Children can learn that they need to save for items and that they cannot have it until they have saved up their pocket money. Some families believe that pocket money should be earned rather than given and may assign a couple of age-appropriate chores that must be completed before pocket money is given. These may be in addition to some chores that are already expected.
Some families may choose to set some ground rules about what the pocket money can be spent on. For example, the money can be used to pay for.
- Saving for a special game or toy
- Special trips like going ice skating or bowling
- Birthday/Christmas gifts for friends or family members
- Occasional sweet treats – ice cream or sweets
- Saving for holiday money and exchanging it for foreign currency
Setting some ground rules for these items from the offset will help the child know their boundaries.
Introducing children to the concept of money
Introducing the concept of money can begin when children are toddlers. Playing shop and using toy cash tills at home are a great way of bringing real life money scenarios to children. Creating an ‘at home’ café, where the children choose their lunch items and then must pay for them afterwards is also a fun idea.
As they get older, work with your child to plan a family dinner menu, then go to the shops together with some cash and help the child to budget and choose the correct ingredients to make the dinner. They can then pay for the items at the shops, thus making money and what things cost, less of an alien concept. Here you are also introducing the child to the concept of shopping around, evaluating all the options and keeping to a budget.
When should my child get their own pocket money?
When and how much pocket money to give completely depends on the family situation. The BBC reports* that money habits are set by the age of seven and that there is call for better financial education in primary schools. An Experian survey** revealed that 75% of parents first gave their child pocket money between the ages of five and seven. It showed that as soon as your child can count and understand the concept of having a set amount of something, then they are probably ready for pocket money, even if it’s only a few pence.
It is completely up to the individual families though; some prefer to wait until the child is older and more appreciative of how much things cost.
Whenever you start, it is important that the child understands how much they will be getting and how often that will be.
Simplistically, your child is ready to start managing pocket money if they understand these three basic ideas:
- You need money to buy things
- Saving money will allow you to buy more expensive items
- If you spend all your money in one go, there will be no more money until the next “payday”
How much you give is totally dependent on the family budget. Don’t be pressured into giving more than you can afford, which is tricky when your child’s friends might be receiving more than them. A good alternative if you can’t afford to give your child pocket money, is to try using homemade tokens to allow them to save up for an activity, such as a family cinema trip or picnic in the park.
Advice on how to spend wisely
The very act of regularly receiving their own money and being allowed to decide how to spend it, is vital in your child’s process of becoming financially independent. It can be useful for you as a parent to teach your child the process of delayed gratification, by encouraging them to really think about a purchase rather than impulsively spending. If after a while the child still really wants to spend the money, then it is a considered purchase rather than an impulsive one (which is good advice for some adults too, myself included!)
Pocket money and chores
Paying your child to do chores around the house is a complex issue. No single rule is right for every family.
Some families feel that everyone should help with chores because the child is a member of the family and should share in the responsibility of running the house.
On the other hand, some families feel that pocket money should be earned and not just given. And giving pocket money can motivate some children to do chores.
Maybe the compromise is to have a set of age-appropriate chores that it is expected that the child completes outside of their pocket money and then additional chores linked to the pocket money.
If you do decide to link pocket money to chores, it’s a good idea for the chores to be regular – for example, tidying up the bedroom daily or weekly, putting out rubbish bins each week, feeding the family pet each day and so on. This gets your child in the habit of working to earn money. If they do not complete the chores, then the pocket money should be reduced or not given until they are completed.
This is completely down to the individual families; but the key is to be consistent.
When I was growing up, I had to do extra chores to earn money to pay towards school trips for example. My parents would pay half and then I would do extra chores (cleaning the car, cleaning the bathroom, mopping the floor) to earn the remaining half the money. It made me appreciate the school trips that much more.
Save, Spend, Donate
Introduce your child to the concept of Saving 50%, Spending 40% and Donating 10%. Some parents use 3 different money jars / piggy banks to show how the pocket money can be split.
It is a good financial habit to save for a rainy day. Open up a bank/building society account for the children and go with them at the end of the year with their money that they have saved and help them count it and deposit it into their account. It will soon add up and can be used for larger items like a new games console, driving lessons or even their first car.
It is always good for children to understand that there are people less fortunate than them and that donating some of their pocket money is a kind thing to do. Perhaps your child could sponsor a charity or spend the money on food bank items or support the local homeless shelter.
Once it’s gone, it’s gone
Learning how to budget is one of the key lessons to be learned from receiving pocket money, so ‘topping up’ your child’s pocket money if they spend it all, will not be doing them any favours. As time goes by, they will soon realise that if they want to do or buy things throughout the week or month, then they will need to spread their spending.
*BBC – linked below.
** Experian 2016.