Why pocket money should be a teaching tool, not a cash handout

Three key questions dominate parents’ thinking about pocket money in a world of digital payments and rising living costs.

Some parents hand out too much pocket money. Picture: Mark Brake

Parents face more challenges than ever when it comes to paying pocket money to their kids.

Cash is disappearing at a rapid rate as our financial world turns digital, children are constantly hit by a barrage of spending requests on their digital devices, and financial lessons are inadequate in schools.

On top of that, the cost-of living crunch is squeezing disposable household income and prompting some parents to reassess how much pocket money they pay and how they do it.

The biggest question facing most parents is simple: how much should I pay and what is too much?

The answer, money experts say, depends on a range of things such as whether the kids work around the house, what parents expect pocket money to pay for, and what mum and dad can afford.

An analysis by pocket money app Kit of 60,000 customers has found payments vary by age, and older teenagers aged 15-to-18 get the biggest bucks – an average $17 a week.

The next oldest age bracket, 12-to-15 year olds, get an average $12 per week, while nine-to-11 year olds get paid $8, Kit found. The youngest pocket money recipients, kids aged five to eight, get an average $7 a week.

The fact that we’re looking at averages here means that some children get significantly more than that, and some get significantly less.

Some parents pay pocket money without getting their kids to do anything for the cash, while others run detailed spreadsheets or tables with dollar amounts delivered depending on chores and their time taken.

Pocket money works best when it teaches children that effort brings rewards, so even if you don’t have a strict chores list, it’s wise to base pocket money on some level of household help.

CommBank-owned Kit’s managing director, Yish Koh, says the amount paid ultimately depends on how much each family can afford.

“But ideally an amount that requires your child to make trade-offs between saving and spending,” she says.

“If not, the amount you’re paying out is likely too much. Amount aside, it’s more important that pocket money is regular, helping kids build the necessary budgeting skills they’ll require in later life.”

Koh says pocket money payouts have fluctuated in the past year, “perhaps a reflection of the current cost of living crisis”, and could be taking a hit as families tightened their spending.

I personally reckon giving your kids $25-$30 or more weekly won’t teaching them to value money. Many parents base pocket money on $1 per year of age.

Yish Koh, managing director of kids’ pocket money app Kit. Picture: Supplied

Kit has launched a new feature that helps children learn about earning interest on their savings, by letting parents link the app to a savings account currently paying 5 per cent annually.

Koh says seeing interest accrue on savings from a young age can have a positive impact on people throughout their financial life.

Another big pocket money question for parents is whether to go with cash or digital.

Many advisers say cash is best, especially for young ages as it also helps children learn simple maths skills.

I agree with that, but believe that once children start using devices and apps where electronic spending is involved, it’s probably time to start paying them pocket money electronically.

After all, cash will continue to disappear, and the sooner children learn how real-world finances work – including electronic transactions, tap-and-go and reading bank account statements online, the better.

Big question number three facing parents is frequency of pocket money. Kit found two-thirds of parents pay it weekly, and I reckon they’re on the money.

While parents may have to juggle bills and other spending with their monthly or fortnightly wages, kids shouldn’t have to deal with that at a young age.

Originally published as Why pocket money should be a teaching tool, not a cash handout