Taking the stress out of kids' pocket money

Kinderling News & Features

Pocket money can be confusing as a parent. How much should we give? Should we enforce savings? Or let them just spend it as they want?

Research has shown the way we talk to our little ones about money has lasting impacts on their financial literacy as they grow.

Dr Justin Coulson is a parenting expert, author and educator. As a father of six, he also knows plenty about handing out pocket money and his approach balances education with fun.

Should we give pocket money?

This initial question is entirely dependent on each family. Justin says to give what feels right for your kids, and be clear with them why they are getting it.

"Why are actually doing this? Is it just so they can have some money to spend without hassling you all the time? Are we trying to teach them something and if so, what? These are the kinds of questions that we need to work out in our own family so we can work out how we can do pocket money effectively," he says.

Listen to Dr Justin Coulson on Kinderling Conversation

It’s also very important to promote equality if you elect to to give pocket money. Editor of Money Magazine Effie Zahos says that we have figures that show gender inequality and pay disparity in our homes, long before our little humans enter the workforce. "The Australian Institute of Financial Studies does say regular pocket money does help with financial literacy. Heritage Bank sent out a report on pocket money that said boys are paid more than girls, 2015. Girls $9.60 on average, boys $13 on average" she says.

It seems such a small thing, but boys and girls should get the same amount!

What age is okay to start?

Research has shown children at young ages don’t have a concept of what money is. If you give them a $2 coin but they get four or five coins in return as change, they actually believe they have more money! While they do have more coins, but they can’t grasp the concepts yet of the value attributed to those coins. Justin says this is a sure sign that kids aren’t ready for pocket money at those young ages.

"We want to be able to help them understand how maths works otherwise they won’t have any appreciation at all for pocket money."

To earn or to learn

There is a school of belief that pocket money should be given in exchange for chores around the home. But Justin says that that can breed a dependence on money in order to get anything done at home. In Justin’s home, he and his wife decided pocket money was not going to be 'earnt'.

"The evidence would suggest that kids would become less motivated to help unless there’s something in it for them," he explains. "If we say to them 'you get five bucks for washing the car and then one day we say 'Hey, could you please wash the car', they say, 'what's in it for me?' In my home I just want you to wash the car… 'It's what we're doing on a Saturday. Come and join in! I might spray you with water and we'll laugh and have fun."

This way of approaching pocket money is all about educating children about money, laying the groundwork for later in life and positive relationships with money.

"They receive pocket money as a gift from us so they can learn how to use their pocket money wisely," Justin adds.

Save, Donate, Spend

It's an oldie but a goodie, the Rule of Thirds. One of the simplest lessons you can teach your kids about money starts with pocket money. Just because we’re giving pocket money doesn’t mean all of it gets spent on lollies.

Justin explains, "if it’s say $10, we say to our children we want you to do three things with this $10.

  1. We want you to save half of it, because we want to teach them the value of saving so that they can get interest in their bank account and see the money compound over time.
  2. We ask them to put 10% towards a cause. We believe in  encouraging our children to find something that should be supported, to look after people who aren’t as privileged as we are.
  3. That leaves them with $4 … to do whatever they want with. We would encourage them then to think about things they might want to save up for.

We want to get them to think about how they spend that discretionary income because it's got to be for spending but also for things that they might want to buy on their own that are a little bit dearer. Why? Because they never get to spend their savings."

Teach them to plan ahead

When it comes to their 'spending money', it's also vital kids learn to look ahead and budget for upcoming events they want to go to, like a movie or the Boxing Day sales. 

Justin says big family trips can provide wonderful teachable moments as inevitably one child will turn up with no money and ask for more. At this point, he advises against just giving them more, as he had to do on a recent trip to the Easter Show.

"The younger kids or the older kids who hadn't been frugal saw the others having fun and they begged," he recounts. "We said 'We gave you 12 months warning that we were going and that you needed to be wise and you chose not to be. So, let's go look at the dog show or let's go look at the cows cause they're all free.' And they learnt from that… Next time when we visit the show again they'll have a bit more money in their jar because they want to have those experiences."

It sounds easy to do, but it's anything but, particularly if your child starts to have a meltdown right in the middle of everything. That's when we need to remember to be more calm than our child and not just say 'I told you so'. 

Instead, save that chat for a later date, like your next pocket money meeting. Justin suggests discussing what they learnt from the experience and how much they want to save for their next outing. Hopefully, they've learnt a valuable lesson!

Listen to our new podcast Your Family, Your Money

Get your finances sorted with invaluable advice from money experts and mums, Caitlin Fitzsimmons and Georgina Dent.