Pocket money, also known as an allowance, is a great way to give your children a taste of freedom while helping them learn about money.
Pocket money can help your children learn about savings, budgeting and the value of money. It might also stop them begging you to buy them stuff all the time – which can only be a good thing!
Before deciding whether to give your child pocket money, it’s wise to consider both the pros and cons.
Keep reading to discover when, why and how to give your children pocket money.
The pros and cons of pocket money
The pros include:
- Giving your children control of their finances will help them to learn how to manage money
- Teaching your child the value of money. Once children understand how long it takes to save for big-ticket items, they will be less likely to beg you for them
- Reducing pester power. Once they have their own money to spend, they won’t be asking for so much of yours.
The cons include:
- Relinquishing control. You won’t have a say in how they spend the money. This might be a good lesson for you in accepting your children’s independence; watching all their money go on sweets and plastic tat, however, is not easy
- Giving your money away. There’s no way around this; pocket money costs you money. You’ll have to factor it into your expenses. Consider their siblings and future allowance increases when deciding how much to give.
How much pocket money to give
The best way to figure out how much pocket money to give is to work out what you can afford, think about what your children will want to spend it on and find out what the going rate is in your area.
There’s no point in giving more than you can afford; that’s just bad business. And if you give too much, it will only pain you to see it all spent on rubbish.
Ask your friends with similar-aged children how much pocket money they give. This will give you an idea of what your child’s peers will probably be getting. You don’t need to match it; instead, you should focus on giving what you can afford.
How to give pocket money
There are a few different ways to give kids pocket money. It would be best to consider affordability, convenience and your child’s personality when deciding which one to choose.
Let’s take a look at the options for ways to give children pocket money:
A piggy bank
If you’d like to give your children an allowance in cash, a piggy bank is an obvious choice for storing their money. They’ll be able to add their pocket money each week and dip into it as and when they desire.
The benefit of an old-fashioned piggy bank is that your kids can easily see how much money they have. It’s also easy to add other funds to the same pot, so if they get a dollar from a grandparent, they can add it to the collection.
The downside of a piggy bank is that your children can’t carry it with them at all times. Sometimes they might wish they had money on them when it’s sitting at home in their piggy bank. Some kids prefer to have a spending card, like their friends do.
A bank account
A bank account is another great way to give your child pocket money. However, there are usually age limits for accounts. Younger children cannot have bank accounts, so you might need to wait until your child is a tween for this.
If your children are old enough for a bank account, they could benefit from interest on the money saved. Some bank accounts have a minimum amount they must pay in each month, so you will need to see whether you can meet this requirement.
A prepaid card
This is probably the most popular option at the moment, so your child’s friends will probably receive pocket money in the same way. A prepaid card can also be used to make contactless payments in shops and to withdraw cash from ATMs.
The card is controlled via an app, so you can easily add money to your child’s card and have a regular pocket money payment setup. You can also add any birthday and Christmas money directly onto the card. In addition, most prepaid cards can set up a separate savings pot so your child can choose to ringfence money for the future.
Most prepaid cards charge an annual fee, so you’ll need to shop around to get the best deal. It’s also worth looking at the cost of replacing lost cards as this can be expensive. If your child is prone to forgetting or losing things, a prepaid card might not be the best option. Your child will need to memorize a PIN number for the card.
At what age do children need pocket money?
There is no set age when children need pocket money. You’ll probably find they’ll start asking for some when their friends begin to receive an allowance. Some parents choose to start giving pocket money to their children from as young as four, although others prefer to wait until their children are older.
When your children spend time out of the house without you, it will help them if they have easy access to money. For example, pocket money will allow them to buy foods (read ‘junk’) to share with their friends at the park.
Should pocket money be given for chores?
Some parents choose to give pocket money in exchange for the completion of chores around the house. Kids might be required to keep their bedrooms tidy or empty the dishwasher, for example.
Many people view this as an excellent way to teach children the value of hard work. It is also thought to help children appreciate the money more because they have worked for it.
However, if the pocket money is dependent on chores being done, you will need to consider what happens on the weeks when chores don’t get finished. Do you still pay pocket money even if your child didn’t actually earn pocket money? Does your child go empty-handed? How will you manage the emotions about this? You could get around this problem by offering a base rate allowance with a top-up for chores completed around the house.
Some people feel chores should be expected rather than rewarded and that contributing to the household is a part of life. If this is your opinion, it might be counterproductive to offer a financial reward. However, others are on board with encouraging children to earn money by completing household chores to supplement pocket money.
For further information, take a look at Should Children Do Chores?
Can kids spend their pocket money on anything?
Before giving your child pocket money, you need to decide whether there are any ground rules. For example, are you going to set rules about what they can spend their money on? If the allowance is supposed to give them independence, it might not make sense to restrict what they can spend it on.
You need to accept that a lot of it will be spent on sweets and junk food, and toys you consider to be instant landfill. These things might seem like a waste of money to you, but it’s up to your children how they spend their money.
Should pocket money go into savings?
It’s up to your kids to decide whether they want to save or spend their allowance. While you might feel it wise for them to start saving now, it’s their money, and it should be their decision.
If you’d like your children to start saving, you should discuss savings with them. You could tell them about your savings and how they helped you in your life, or perhaps about how you wish you’d had some to fall back on.
It is their decision, though, and you shouldn’t try to shame them into saving their money.
Should pocket money be donated to charity?
It’s up to the owner of the pocket money to decide whether it should be donated to charity. Some parents encourage a ‘spend, save and give’ policy, where money is split three ways. However, this should be up to your child to decide.
Suppose you’re adamant your kids should split the money. In that case, you perhaps need to factor this into your calculations and first make sure they have enough allowance to spend on themselves and then the rest of the money can be automatically split between savings and donations. That way, your children can’t intercept the money and keep it for themselves. It might not feel like they’re learning money management, though, if they’re being micromanaged in this way.
How to explain why other kids get more pocket money than your child
It can be awkward when children start to notice differences between themselves and their friends. For example, they could find out they’re receiving a smaller allowance than their friends and want to know why.
First up, remind your child that some kids exaggerate. Just because some children say they’re receiving thirty dollars a week does not mean they’re getting that much. Also, you can explain that families have different incomes, priorities and expenses.
You shouldn’t feel pressured to give more than you can afford to ‘keep up with the Joneses’.
When should I increase my child’s allowance?
You should increase your child’s allowance whenever you want to. There are no hard and fast rules for when to give an allowance increase. If you wish, you can put it up each year or wait until the child asks for more.
If you notice the cost of toys and sweets increasing, you might want to give your kids more money, but it’s always important to give only what you can afford.