The magic formula for pocket money

Pocket money is a learning tool, but there are other ways to teach kids about money.
Pocket money is a learning tool, but there are other ways to teach kids about money. Photo: Danielle Smith

When fellow parents ask me for advice about teaching children about money, it often boils down to how much pocket money they should give.

I was recently on television to talk about this topic and the Studio 10 panellists were the same – they seemed to want me to put an exact dollar figure on it.

Sorry, it ain’t that simple.

Being able to choose just one type of cake when there are two on offer is a good life skill.
Being able to choose just one type of cake when there are two on offer is a good life skill. Photo: Shutterstock

I don’t think it matters how much pocket money you give your children, whether they have to do chores to “earn” it or it’s money for jam, or even if you give it at all.

You need to go back to what pocket money is for. Is it so your children can buy things they want? Or is it a learning tool?

If it’s a learning tool, what are you trying to teach? Are you trying to teach about the link between reward for work? Or are you imparting basic money management and budgeting skills?

Pocket money can do all of these things, but there are also other ways to approach the same challenges. There’s no one size fits all.

Parents need to provide a roof over their children’s heads, feed them and clothe them and send them to school. Spare a thought for families that find that hard – or if you can, spare a dollar or two. Charities like the Smith Family are running their winter appeals right now, and donations are tax deductible. Go on, I’ll wait.

Assuming you have the basics covered, I think the aim with pocket money is to provide a learning experience.


If it’s just to let kids buy stuff, why bother? You could just buy it for them. Or not.

Pocket money is a tool to teach financial literacy in three main ways.

First it’s a way to give children practice in handling money – going into shops to buy goods, handing over their money and counting the change.

There other ways to achieve this too. If you can’t afford or don’t want to provide pocket money, look for ways to give them this practice in everyday life. Send them into the shop to pay for milk and bread for the household. Or let them run a lemonade stand and develop business skills.

Often, you might be paying with plastic. Chat to them to provide context. Explain it’s a debit card and that means you have the money in your account. Or explain that even though it’s a credit card, it’s not free money and you have a plan to pay it off. In other words, modelling responsible money behaviour yourself goes a long way, but you also need to communicate what you’re doing.

Second, regular pocket money and also Christmas and birthday money from relatives can give children practice in budgeting and delayed gratification. It’s about picking priorities, and saving up if necessary.

So it’s important not to set the pocket money too high – if they can fulfil their every heart’s desire without ever having to make choices and tradeoffs, they’re missing a learning opportunity.

I reckon this goes for more than just money. Have you ever been to a social event where there are two cakes and people will have a “bit of both”, which is really code for having two slices? Having to choose between two good options and focus on what you really want is a good life skill.

Third, pocket money can be a way to teach a link between work and payment. This is why some families pay children for chores.

I believe children should do chores for an entirely different reason – so they grow up as functional adults who contribute to the running of a household. Maybe you can pay a kid to wash the car, but I think they should contribute to basic tasks such as cooking, cleaning and laundry without being paid.

My favourite concept comes from the childhood of the Moriarty sisters, Liane, Jaclyn and Nicola. Their father paid them to write stories because he wanted to teach them that you can be paid to do something you love. With all three of them now successful authors, you’d have to say that turned out well.

You can also encourage teenagers to get a job outside the home – and it’s an excellent opportunity to extend financial literacy into the realm of fair work entitlements and superannuation.

What do I do with my seven-year-old twins? I don’t pretend to have a perfect system, but I’ve started paying pocket money this year, at a dollar a week for every year of age. It comes with conditions – out of that $7, they have to save $1 for the long term and give $1 to a charity of their choice.

Rather than bother with children’s bank accounts, I’ve set up sub-accounts with my bank – this is technically in my name, but I can label the accounts so I know what’s what. Every week $7 goes in, then $1 goes straight to their individual savings account and $1 goes back to me to fund their charitable donations. In time, I plan to tip the long-term savings into an index fund or an insurance bond.

My son wanted to help animals so he’s supporting WWF and my daughter wanted to help plants so she’s giving to the Australian Conservation Foundation. The minimum monthly donations are a fair bit more than $4, so I’m topping it up and happy to do so.

That leaves them $5 each to spend or save. My son saved up for a special toy and has made a few small purchases since then. My daughter hasn’t touched her money at all, because she’s got her eye on a bigger prize – she’s saving for a horse.

I told her she would have to save enough not just to pay for the horse but also to provide it with a suitable home convenient to our inner-city abode. It’s a big ask but if she pulls it off, I’ll have succeeded in my mission too.

Caitlin Fitzsimmons is the editor of Money. Facebook: @caitlinfitzsimmons