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When, how much, what for – 10 helpful tips on giving pocket money

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Children should learn how to save from an early age – and parents can help them. Source: iStock

They say that practice makes perfect – and nothing could be more true when it comes to managing money. The sooner children learn to handle their own pocket money independently, the more successful they will be at budgeting later in life. However, for many parents, the decision to start giving their children pocket money raises a host of questions. Our ten tips provide useful guidance on how to navigate the issue of pocket money successfully.

There's no doubt that giving pocket money teaches children to handle money sensibly. Early and independent budgeting of their own money prepares children for the serious business of life and can even save them from falling into that infamous debt trap as young adults. It's becoming increasingly important to be able to manage money well. Thanks to computers, smartphones, tablets and the like, advertisers are able to target younger and younger audiences. However, in many families, the matter of how to handle pocket money is clouded with uncertainty. The following tips can provide some clarity:

Start as early as possible

You can start giving pocket money as soon as the child knows the value of money and can do simple calculations. This understanding usually begins to appear when children are in the first class of school. There is no set age to start though – it also depends on the maturity of the child. But clearly, given that around 80 per cent of bankrupt adults start spiralling into debt before they reach the age of 25, the sooner children become financially literate the better.

Give it regularly

Pocket money can be paid to children under ten (or between the first and fourth class of primary school) on a weekly basis, as young children will have trouble planning for a whole month. Older children and adolescents can receive theirs monthly. This teaches them to budget over a longer period. 

Important: Pocket money should always be given at a fixed time – unprompted. Children should not have to beg for it.   

Be guided by recommendations

Whether and how much pocket money a child receives varies from family to family. The amount is usually based on the financial means of the family as well as the age and maturity of the child. But many families are unsure how much pocket money to give. Tools like the pocket money calculator created by Comparis in conjunction with the newspaper 20 Minuten are designed to help. This kind of calculator helps families work out how much pocket money is recommended in their case.

Important: Giving children and adolescents more pocket money than anyone else does not do them any favours. Pocket money must support a realistic lifestyle – after all, not everyone will earn the same amount of money later in life.

Set rules and be consistent

The child should not play parents off against each other. That’s why is extremely important that parents agree on the amount of pocket money to give and how it should be used.   

Let children decide

Children should generally have free reign when it comes to pocket money. In other words, they should be allowed to decide what to spend it on by themselves. You can help your child with these decisions. It can be a good idea to assign a proportion of the pocket money to particular purposes. For example, some could be set aside for leisure activities (cinema, small purchases and similar) and some to be saved.  

Introduce extra pocket money

As the child or adolescent increases in age and experience, you can start to introduce extra pocket money or an allowance. The idea is that the child finances some general living expenses independently. This could take the form of a fixed amount for a mobile phone or clothes, for instance. This will foster the child's sense of responsibility and independence. However, it is important that there is mutual trust between the parents and child for this concept of extra pocket money to be successful. Don't forget that the amount of extra pocket money to give depends on the financial position of the parents and the maturity of the child or adolescent. The pocket money calculator provides guidance on this as well.

Avoid financial punishments

Since pocket money is not a suitable means of educating children, you should not use it to punish them. Refrain from imposing financial penalties as far as possible and give pocket money irrespective of the child's behaviour or performance at school.

Important: Sometimes it can make sense to tie part of the pocket money to certain conditions, like carrying out household chores.

Avoid financial rewards

While pocket money should not be used as a punishment or a way of putting pressure on a child, you should steer clear of giving it as a reward, too. Helping around the house, for example, should be a matter of course anyway. Giving pocket money for everyday tasks such as keeping the bedroom tidy or washing up is therefore not recommended. However, you can feel free to pay them a “bonus” for completing more demanding tasks like washing the car or mowing the lawn.

Don't give any advance payments

Pocket money should ultimately be used for enjoyment but not frittered on non-urgent items. There is therefore no need to give more pocket money or money in advance. After all, the purpose of pocket money is to teach young people to manage their own finances, and this includes saving up for things and putting wishes on hold. If you immediately compensate for any dip in their finances, the opportunity to learn is lost.  

Important: If the pocket money is invariably not lasting until the end of the month, you need to sit down with your child and talk about how to handle money.

Talk about money

The best way of preventing debt is to be open about money with your offspring. For example, you can involve children in grocery shopping and show them how much food costs, and explain where the money actually comes from. As they get older, you can discuss the cost of rent and other living expenses to help them understand better.