A helpful guide on how to give pocket money provided by http://www.thechildrensmutual.co.uk

1. Parents’
Pocket Money Guide

2. What this guide is about
We know that around 6 or 7 years of age is when children are learning and
understanding more about saving – be it saving for a game, or helping the environment
by saving energy. Research tells us that this is also the most popular age to start
giving pocket money.
In response to that information and feedback from our customers we’ve put
together two helpful Pocket Money Guides – one for parents and one for children.
Pocket Money is a great way to help children learn how to handle money sensibly –
an important life skill!
There’s also our fun Pocket Money Petz tool which helps children learn about how
money has to be ‘earnt’ and saving up for something really cool.
How children learn about money Savings
How to give pocket money Pocket money:
things to think about
Setting rules
Other forms of money
Paid and unpaid tasks
Do’s and don’ts
Using pocket money wisely
How much should I give?
Spending and saving
Pocket money record
Helping children to save
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3. How children learn about money
Children need help in learning to understand the concept of money. It means
understanding what money is, where it comes from, and where it goes. It means
learning how to look after money, and how to budget and spend it. It means making
personal choices, and knowing that there are moral issues about money. Children learn
about money in stages.
Ages 8-11 years learn about
Ages 5-7 years learn about
• the coins and notes that we use • other forms of money: cheques,
What money is • different coins and notes in credit and debit cards, gift tokens
different countries • credit
• how we get money from work
Where money • both regular and unpredictable • benefit payments if there is no work
comes from sources of money • pensions and where these
come from
• household expenses and regular
• choices of what to spend
financial commitments
Where money goes money on
• tax and pensions being deducted
• household expenses
from earnings
• putting money into an account
• how to keep money safe
Looking after money • keeping their own financial records
• keeping a record of money
• bank statements and savings books
• saving
• paying for things we buy
Spending money • different ways of saving and
• other ways of spending money
planning ahead
• the beginnings of insurance
Risks and returns • losing money or having it stolen
• savings and interest
• balancing needs and wants
• the value of money
• good and bad debt
Personal choices • what you buy is more important
• best buys
than what you spend
• value for money
• the consequences of having • living standards in different times
Ethics of money more or less money and places
• different living standards • the ethics of money
This table shows the financial capability guidelines for personal finance education from
the Department for Children, Schools and Families.
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4. How to give pocket money
Why give pocket money?
Pocket money teaches children the basics of budgeting, helping them learn to manage
money while they are still young and you can guide them. Giving pocket money can be
a valuable way of teaching your child good money habits and financial responsibility.
It’s also a great way to introduce the importance of saving.
When to start
The most common age to start giving pocket money is around six years old, when
your child is at school and can begin to think sensibly about money. There is no
point in giving money to a child who cannot count or does not know what money is
for. However, you know your child best so it will be when you judge that your child is
sufficiently mature to handle money
How often
It’s best to have a regular weekly
pocket money day. Some parent’s
like to give pocket money when the
child has carried out agreed tasks
such as making their bed or laying
the table, others like to pay a regular
amount, no strings attached.
How much to give
Talk to friends and neighbours about
how much pocket money local
children get. Look at the table on
page 13 to see how much children
get on average in the UK. If your
child also gets regular pocket money
from a grandparent or aunt or uncle,
take that into consideration.
What the pocket money is for
Set out the rules clearly for what the pocket money is for. For example, some may be
for immediate spending on comics or sweets or saving for a small toy, some for saving
towards larger items or family birthdays or holidays, some for long-term saving.
Link to Setting rules
When to increase pocket money
An obvious time is at each birthday. If your child asks for an increase, you could challenge
them to present an argued case for it, including records of what they have spent and
budgeting plans for the future. Link to How much should I give?
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5. Setting rules
Fair play
Keep to your side of the bargain and give pocket money regularly on a set day each
week. Don’t give in and buy something for them that you have expected them to save
for. And don’t give money as a bribe! Monitor the pocket money that relatives give to
make sure your child doesn’t get too much.
Working for pocket money
Some children earn some or all of their pocket money by doing household chores.
This feels like a good way of learning about the value of money. But a word of caution:
a survey about pocket money showed that children who earned pocket money were
less likely to save it. They saw it as earned cash that they could spend immediately.
So earning money may not teach children to save. One way of handling this is to give
just part of pocket money as earnings. Or to reserve earnings as a way of topping
up pocket money when your child is saving for something special. Take a look at our
Pocket Money Petz tool where your child can earn more pocket money
You may want to sort out the household chores into those you don’t pay for and those
you do – there is no point in paying children to do what you expect them to do anyway!
Link to Do’s and don’t’s
You may want to hold some pocket money back if your child does not do their share of
ordinary household chores.
What pocket money is not for
Make it clear what you will buy, such as clothes, books, things for school, outings.
Also make it clear what their pocket money is for.
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6. Paid and unpaid tasks
Here are some possible ways of sorting out paid and unpaid household tasks.
Chores done for free money Chores that earn pocket money
• Making own bed • Making beds for others
• Putting clean washing away • Cleaning the car
• Helping with washing up • Doing all the washing up
• Filling and emptying the dishwasher • Sweeping/vacuuming the floor
• Tidying own room • Raking up the leaves
• Emptying bins • Walking the dog
• Setting and clearing the table • Gardening
• A big tidy-up of cupboards and rooms
• Sorting out equipment for school
• Cleaning windows
• Preparing packed lunches
• Helping with decorating
• Feeding the cat
• Cleaning shoes
• Homework
• Watering the houseplants
• Cleaning out the pet’s cage
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7. Using pocket money wisely
Helping children use their pocket money wisely
Unless you live within easy distance of shops, your child will be dependent on you to
take them somewhere to spend their money. So you do have a lot of control over their
purchases. Sometimes children are so keen to spend their money that they buy almost
the first thing they see, so make sure they have opportunities to spend wisely, and
discuss with them the pros and cons of particular buys.
Discuss ‘wants’ versus ‘needs’
Children often do not know the difference between what they want and what they need.
We can’t have everything we want, so we have to make choices. For adults, we have to
sort out ‘needs’ first (such as food, rent, clothes, warmth), and then think about ‘wants’
(fashion, holidays, entertainment). It is important that your child understands that you
have to make careful spending choices. Explain where your money comes from, and
that you have a limited supply of money that has to cover everything. Explain also about
the household expenses, and how you make priorities about what you spend money on.
Helping towards approved items
You can encourage your child to spend their money on something you particularly
approve of by agreeing to pay for half of it. Or you may offer to match or double the
money they have saved towards a large item such as a holiday, once they have
reached a certain savings target.
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8. Spending and saving
When children are little and they first get money, they may spend it as quickly as they
receive it. Help them think about saving up to buy something worthwhile. Other children
may not know what to do with their money, and leave it around in their bedroom, with
the risk that it may get lost. Help these children think about keeping their money in a
safe place.
Value for money
Things we buy with our money have different values and may not always be worth
what we spend on them. Also, there are differences in what people are prepared to pay
for the things they need or want (as auctions show). It takes children time to realise
the value of items and experiences. It is important that your child has opportunities to
make choices so that they begin to develop their own sense of what things are worth.
Shopping around is a good skill to learn, finding out how to ask the right questions,
collecting details, and getting advice from the right source. When you go shopping,
encourage your child to look at the price tags. Compare prices with them and discuss
value for money.
Discussing budgeting
In a nutshell, children need to learn money -- what it can and can’t buy, how it doesn’t
grow on trees, and why you need to be careful about when and where you spend it.
Simple lessons learned in a simple way, at a simple time in life.
As adults we need to plan how we will spend our money. Keeping track of what we
spend allows us to see whether we are sticking to our budgets. To do this we keep
receipts, bank statements, credit card vouchers, and so on. We also compare prices
of things we want to buy to decide on value for money. Help your child keep a record
of what they plan to spend their pocket money by downloading pages from their
Pocket Money Guide. Include short-term, medium-term and long-term savings, and
any donations they plan to make.
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9. Helping children to save
Things to think about
You can encourage your child to save right from the start. If necessary, help them find
something worthwhile to save for.
Spend, Save, and Donate
It’s important to explain to children that living within a budget can sometimes mean
deciding to get one item or another and that when funds are limited, you can’t always
have everything right away – sometimes you have to save up for things that you’d
like to buy.
A very simple way to help children learn about saving is by using four jars or moneyboxes:
• Label one jar ‘Spend’ (the money in this jar can be spent on anything they wish)
• Label another ‘Save/short term’ (money for toys, cinema tickets etc)
• Label another ‘Save/long term’ (maybe a bicycle, games console, large toys,
car or education)
• Label the remaining jar ‘Donate’ (it is important to be socially responsible and
you can begin early by encouraging your child to donate small amounts)
You’ll need to explain to your child what the jars are for and help them decide how to
split their pocket money between them.
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10. Savings
Short-term saving
If your child wants to buy something they cannot afford, such as toys, CDs or cinema
tickets, encourage them to save up before they buy it, rather than lending them the
money. They can work out how much to put aside each week, and how long it will take
them. For a small item it may only take them two or three weeks.
Medium-term saving
Encourage your child to save for family
presents. They can save spending
money for holidays, and also for much
larger items for themselves such as
a bicycle, a video gaming system, or
special clothes. You could encourage
the saving habit by agreeing to match
the amount they have saved, or give
£5 for every £20 saved. Or you could
work out a percentage increase to
give them the idea of interest earned.
When they’ve saved for a larger
item, let them hand over the money
themselves. This will give them a
sense of achievement.
Long-term saving
With young children you will need to
explain the importance of saving over
a long time for their needs in the future. Talk to them about how the money is
‘borrowed’ by the Bank or the Building Society. It is, of course, important to use an
organisation that is safe and sound. The financial organisation that ‘borrows’ your
money pays you a fee, which is called ‘interest’. Work together to find out how
much the money they have saved will grow over time. As an adult, saving up to
buy something is usually better money management than buying on credit. This is
because you get the interest on the savings, rather than paying out the interest on your
borrowing. The longer you leave money in, the more interest you gain.
Grandparents and other relatives may want to pay into a savings account, either on
an occasional basis, or with a regular standing order. Make sure children know this is
happening, and that they can find out how the savings in their account are growing.
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11. Pocket money:
things to think about
When to pay pocket money
Pay pocket money on the same day each week. You may also want to give special
pocket money for regular events such as birthdays and fete days, and for particular
events such as the ‘tooth fairy’.
Keeping money safe
When you start paying pocket money, you will give cash. Your child needs to learn
how to keep money safe, so provide a moneybox, preferably with a lock. A box that
allows you to sort out the coins is a good way of helping your child count money
efficiently. You may want to provide more than one moneybox, one for current
spending and one for each of the different kinds of savings. Your child can even
make their own moneybox.
Looking after money and knowing how to keep it safe are important skills for children
to learn. Counting money allows them to check that none is missing. As they get
older, children begin to learn that money can be looked after safely by financial
institutions, and that they can see a record of their money in a savings book and
in an annual statement.
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12. Other forms of money
Non-cash forms of money
Your child will sometimes receive book tokens and gift tokens as presents. This is an
early introduction to a form of money that is not cash. As adults we have a variety of
ways of paying for what we need and want: vouchers, postal orders, standing orders,
cheques, debit cards, credit cards, store cards… Talk to your child about all these
forms of money.
Credit
Children will know about various ways in which people can buy things they want using
credit. They may have come across catalogues, credit cards and hire purchase. They
may not realise that things usually cost more this way because we have to pay interest
on what we have borrowed, or because the goods cost more.
It’s worth comparing prices in shops and catalogues to see which cost more. And to
consider the interest you pay on credit card loans if you don’t pay off all that you owe
each month.
Bookkeeping: recording ins and outs
Talk about checking your own bank statements to ensure that the bank has not made
a mistake, and the importance of keeping to your budget. Your child can make their
own financial records by downloading charts from their on-line guide to Pocket Money
and recording the money they receive in pocket money and in gifts, and alongside this
recording how much they have spent. They can also record money in their savings
account, and the annual interest that this earns them.
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13. Do’s and don’ts
Do’s and don’ts
We’ve put together some do’s and don’ts that we think may be helpful. You don’t have
to follow them – you may have your own rules around pocket money in your house
that work better.
Do’s
• Do give pocket money on the same day each week
• Do let your child know what their pocket money is for
• Do expect your child to make spending mistakes, and sympathise rather
than criticise them when this happens
• Do give praise when your child manages their money well
• Do talk about how you manage your family finances, including any
mistakes you make
• Do show your child how to keep pocket money records
Don’ts
• Don’t link pocket money with school performance
• Don’t give advances or loans
• Don’t expect your child to earn all their pocket money
• Don’t worry if your child makes unwise purchases from time to time
• Don’t worry if your child spends their money on things you consider of
little value; they matter to the child
• Don’t expect your child to manage their money well immediately
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14. How much should I give?
Average pocket money allowances in the UK
We asked Mums and Dads throughout the UK about pocket money, how much they
give their children and what they spend it on.
Here are the average amounts of pocket money given by parents depending on the
age of their child:
Age Weekly pocket money
5 1.48
6 1.64
7 2.04
8 1.98
9 2.60
10 2.70
11 2.44
12 3.32
13 3.43
14 4.27
15 5.66
What children spend their money on in the UK
According to the responses from the mum and dads we spoke to the most popular
items that children spent their pocket money on were:
• Sweets, crisps and ice-creams
• Comics and magazines
Where children keep their pocket money
50% of children keep their money in a moneybox.
Children and savings
A third of children save some of their money each week.
The most popular items to save for are games consoles, games for the console,
clothes, jewellery, trainers, Pokemon and Pogs cards, Go Go collectible figures, football
and other sports stuff, art materials, mobile phones and holidays.
When do you increase your child’s pocket money?
One in four children get an increase in their pocket money once a year.
Some have an increase on their birthday, others during the summer holidays.
We also asked them about how much the tooth fairy leaves for their children.
The average rate for the tooth fairy is now £1.15.
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15. Pocket money record
Your child could keep a weekly record of the money they get given, what they spend it
on and how much they save.
Here is an example:
Date: 31st January 2009
Money I received this week
Pocket money £4
Money presents £3
Money earned 50p
Total £7.50
Money I spent this week
Sweets and crisps £2
Comic £1
Donation 25p
Total £3.25
Money I saved this week
Saving for CD £1.25
Saving for holiday £2
Long-term savings £1
Total £4.25
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