Pocket Money for Kids: Don’t Cut Them Off!

As Australian families grapple with the cost-of-living crisis, parents should think carefully before making cuts to their children’s allowance.

Studies showing that cash-strapped Aussie families have been docking their children’s pocket money are concerning.

As someone who grew up in a working-class household, I understand the constraints families are under – but cutting kids’ pocket money might have unintended long-term consequences. By reducing or removing pocket money, we’re losing a prime opportunity to teach our children essential money management skills that will set them up for life.

My parents taught me the value of hard work by paying me for chores, and I’ve adopted a similar approach in my own household – with six young kids (that’s right, six!). Giving children pocket money as a reward for assisting with household chores can help them develop a sense of responsibility and independence.

Creating A Pocket Money System

Even if you can’t afford to give your children a large allowance, it’s crucial to implement some form of system. I advocate for an age-based allowance structure, where the weekly amount paid corresponds with the child’s age.

For example, a three-year-old might receive $3 per week, while a seven-year-old would receive $7 per week.

To receive this weekly ‘base salary,’ children complete routine chores like dishwashing, table clearing, and bed-making. However, more demanding or specialised tasks, such as window cleaning or yard work, offer opportunities for additional income.

To illustrate, a family with four children might adopt the following payment structure:

I also recommend that parents issue a weekly ‘payslip’ to their children, breaking down their earnings by task. This not only adds a touch of realism but also helps children understand the concept of earned income and the satisfaction of seeing their efforts rewarded.

Why Pocket Money Matters

A well-structured pocket money system delivers more than just a few dollars a week. It:

• Builds Financial Skills for Life: When children learn how to budget, save, and make choices with their own money, they’re developing habits that will benefit them for decades.
• Teaches Responsibility and Work Ethic: Linking chores to earnings mirrors the real-world connection between effort and reward, instilling self-reliance and discipline.
• Encourages Goal Setting and Patience: Saving for something special teaches children to delay gratification and plan ahead, both vital life skills.
• Fosters Confidence and Independence: Handling their own money gives kids a sense of agency and decision-making power.
• Creates Space for Family Conversations About Money: A regular allowance can be a springboard for discussions about budgeting, generosity, and values around spending.

Key Takeaways

• Don’t cut pocket money entirely: Reducing or eliminating allowance risks undermining your child’s ability to develop lifelong budgeting and saving skills.
• Tie pocket money to age and effort: Using chores or tasks as the basis for allowance fosters a sense of responsibility and shows the link between work and reward.
• Use it as a financial education tool: A balanced pocket money approach teaches not just financial literacy, but also goal-setting, discipline and a healthy work ethic.
• Think long-term: Even small, consistent allowances can lay the groundwork for strong money habits in adulthood.

Andrew Baxter is an investment advisor, author, educator and commentator who is recognised as one of Australia’s leading experts on trading education, wealth creation and money mindsets. He is the author of The Wealth Playbook and founder of Australia’s top financial and trading education platform, Australian Investment Education.