Pocket money (also referred to as an allowance) is one of the best ways you can teach finance and money concepts to your
children and they can apply and experience for themselves how to manage their own money – we all learn best by doing!
From about age 5, you can pay your kids pocket money in recognition for them doing their chores – naturally
as children get older, and as they get paid a higher allowance, they should be responsible for more chores to help with the
running of the house.
It’s important though that your child understands why they are receiving an allowance,
and what your expectations are.
How much you pay is up to you and your family budget but as a guide, some families
pay a weekly allowance of about $1 per grade at school - so a child in grade 3 will get $3 per week. Some families pay a little
more based on $1 per year of age instead, so an 8 year old child would be paid $8 per week.
If your budget is
too tight to pay pocket money [this can add up if you have lots of kids!], assign weekly points for doing chores. When they
have accumulated enough points, they can get a reward – like going to the beach, or choosing a favourite dinner. To
make it fun, you can even have a spinning wheel of prizes!
This is a good method, as it still teaches the importance
of value, but also teaches that money isn’t the only thing of value. I still remember the days when our toddlers would
put rubbish in the bin for a bit of praise and a hug!
You can also pay your children extras for doing extra tasks
like washing the car, but make sure that you are in control and set the value and timing of these tasks – otherwise
they’ll be washing the car every day and demand $10 a pop!
To get the most out of pocket money as a learning
tool for finance for kids, keep the following in mind:
- Don’t get too bogged down with the link between chores
and pocket money – it’s important for children to realize that they can’t get something for nothing, but
it’s also important for them to realize that they should take some responsibility in helping run the family household
and that helping others is it’s own reward.
- Just make the pocket money a reward for helping mum and dad around
the house – agree with your child which chores they should be doing and explain that the pocket money is in recognition
of them doing these chores and anything else you reasonably ask them to do.
- If your child is becoming lazy with their
chores, remind them what the allowance is for and that if they don’t keep up with their chores, there may be a cut in
their allowance. Afterall, if you don’t do your job in the adult world, your pay also suffers! Never cut it all, and
again, don’t assign a value to the chores they aren’t doing. And always discuss this with your children first.
- Never cut back on an allowance as punishment for something else [after all, your boss doesn’t cut your pay
if you pick a fight with your brother!]. You could set up a system of fines for bad behaviour, but this can also be dealt
with separate to pocket money.
- As well as agreeing the value of the allowance and the chores required to be completed
for payment of the allowance, also agree the terms of payment such as when the pocket money will be paid.
- Stick to
the plan! Be consistent with payment and deductions for poor chore performance.
As well as giving children pocket
money, help them plan what they are going to do with it – spend some, save some? Set financial goals with your kids.
You can also teach them how debts work, by offering to buy them something they really want and then setting up
a repayment plan from their pocket money – make sure you explain about interest on loans, although you may not want
to charge interest yourself.
What ever you decide to do though, it needs to fit in with your household budget
and teach your children real values at the same time.
Check out the tools in the ToolBOX
under the section on “Financial Tools for Kids” – you’ll find a budget sheet and saving thermometer
to help your children manage their own money!