What financial planners pay their kids in pocket money
Dear Ms Wise, My partner and I don’t believe in giving pocket money [to our kids] as we see it as money for nothing. But they’ve reached the age where some of their friends are starting to receive small sums. Do we have the right approach?
The advice: This writer didn’t get pocket money, and the most the tooth fairy ever bestowed was 50 measly cents.
But financial adviser Brenton Tong of Financial Spectrum says there is something to be said for pocket money. It just needs to be carefully doled out.
“There are two parts to pocket money,” he explains. “There’s the earning of it, and there’s the valuing of the money. It’s about teaching kids how to manage their resources.”
Tong tells his clients to figure out which lesson they want their kids to learn first. For example, if the primary lesson is how to earn, then the kids might have to do extra chores to pick up the cash.
“But you can also treat it in a slightly more commercial fashion,” he adds.
Tong doesn’t pay his kids pocket money, but his 11-year-old daughter earns a bit of cash by selling handmade soap out the front of the house, while his 9-year-old son collects cans and makes about $20 to $30 a week.
But if your goal is more about teaching kids to understand the value of money, then it’s a matter of paying the allowance and being strict about spending. That is, parents should insist kids spend their pocket money when they want to buy something new. That means every new toy or that ice cream needs to come out of the little one’s piggy bank, not mum and dad’s wallet.
“Be really, really firm,” Tong says. “Say, ‘I’m not paying for this, this and this. You make it work’.”
Australian kids get an average of $8 a week in pocket money, down from $10 a year ago, a survey of parents by comparison website Finder found at the start of 2023.
Kids in NSW earn the most, with an average weekly allowance of $11, followed by kids in Queensland and Victoria, who earn an average $8 a week.
David Currie, director of financial planning business Wealthy Self, is figuring out how much to pay his daughter, 3.
“We’ve got a bit of a reward chart,” he says. It’s always money for effort.
“We’re keeping it really simple. It’s activities of daily living. So, ‘Do you get dressed yourself?’ Tick. ‘Do you brush your teeth?’ Tick. ‘Can you clean up after yourself?’ Tick.
If by the end of the week Miss 3 has done the majority of the tasks, she receives a couple of dollars.
“She’s got a special purse that’s her reward purse, and when we go to our local markets on the weekend, she can spend her $2,” Currie says.
Ana Kresina, financial educator and author of Kids Ain’t Cheap, has two boys aged two and four. While she doesn’t pay the two-year-old any pocket money, she and her partner have started experimenting with pocket money for their four-year-old.
Their plan is to pay their kids $1 for every year of their age, so he’ll be getting $4 a week in exchange for doing his jobs, like helping out with the dishes and the washing. If he doesn’t do it: no pocket money.
They’re also making sure to pay him in coins.
“That’s really important because cash is not as available in everyday life,” she says.
“We’re using coins so that they learn how to count, and they understand it’s a physical thing. Being unaware of digital currency at this age makes it easier for them to fall into debt as they get older.”
She adds that the act of having to hand over the physical cash is a “hard thing” for little kids, but it teaches them that if they spend money, it’s gone.
She didn’t receive pocket money as a kid, but would get $5 here or there.
“As a parent now, reflecting back on it, I’m like, ‘They should have made me work for it!’.”
Here are some more tips from the federal government’s Raising Children website.
- Explain to your child what pocket money is for and what it isn’t for. For example, if pocket money is to cover entertainment, agree on what kinds of entertainment are OK. Depending on your child’s age, you might give your child some flexibility in using their pocket money.
- Negotiate guidelines about how much money can go into saving, spending and donating. For example, you and your child might agree that your child puts 50 per cent of their pocket money into savings, 40 per cent into spending and 10 per cent into donating.
- Pay pocket money on a set day. You might choose to pay weekly, fortnightly or monthly. Try not to miss a payment.
- Deposit your older child’s pocket money directly into their bank account. This can help them get familiar with digital money and prepare them for using an ATM card.
Got a money-related problem around friends, family and relationships that you need help with? Please email mswise@afr.com. We will get experts to answer your question and keep your name and details anonymous.
This article is for general information purposes only and is not intended to be financial product advice. You should always obtain your own independent advice before making any financial decisions.
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