Using pocket money to build good money habits
Kids learn about money management at home from the example parents or guardians set in managing their day-to-day finances. That's why it's important to instil good practices like setting a spending limit, avoiding impulse purchases, and sticking to a budget. Kids can then practice, be responsible for and build on these good habits with the help of pocket money.
June 2024, 6-minute read
What you'll learn
1. Why should you give children pocket money?
Giving pocket money to your child presents an educational opportunity. It lets a child learn about the value of money by providing essential lessons on how to spend and save responsibly. This experience puts the decision-making process in the hands of the child, building their money-smart knowledge, financial skills and independence.
Teaching children to build good money habits at an early age sets them up for financial success as an adult.
At Westpac, our Pocket Money feature lets you set up regular payments to your child's transaction or savings account that you can amend, put on hold, cancel and track in the Westpac App.
2. When should you start paying kids pocket money?
There is no right or wrong time to start. It will depend on your family circumstances and your child's maturity and eagerness to learn. There are no hard and fast rules, but it might be a good idea to start when your child commences school so that learning about money will complement and reinforce basic maths skills like addition and subtraction.
Pocket money becomes more critical, especially when children need to independently purchase things, like gifts for family members or friends, travel on public transport, lunch once a week at school, or entertainment and extracurricular activities, including going to the movies with friends or joining a team or club. You could let them pay for their mobile phone or driving lessons as they get older.
Along with learning to manage their money from payment to payment, it's important to remember to budget and save for 'wish list' items and encourage long-term saving for the future.
Encourage saving with a Westpac Bump savings account
A great way to teach kids to save is with a Westpac Bump savings account. Link their savings account to a Westpac Youth Choice everyday account with a Debit Mastercard® and get your child mastering their money skills even sooner.
3. How much pocket money should you give?
The amount of pocket money you decide to give your child will depend on several factors:
- How old they are
- What the pocket money will cover
- Why you’re paying the pocket money
- How often you plan to pay it
- Method of pocket money payment
For example, some parents give $1 a week per year of the child's age. So, if your child is 5, you'd pay them $5 a week; if they're 8, they'd get $8. This method also aligns with the average pocket money given by age to Australian kids and works if the weekly amount allows the child to save and afford the items they want. It might not be enough if you expect them to buy their school lunch every day or if you expect teenagers to pay for their own clothes.
Should pocket money be tied to chores?
It’s a personal choice. Some families feel that household chores are part of everyday family life and that kids should do their part without being paid to do it, while others believe giving pocket money for chores reinforces the notion that 'nothing is for free' and instils a good work ethic. No matter your choice, be clear about what is expected from the child and what they can expect in return.
How often should you pay pocket money?
Many parents give kids pocket money weekly so children can learn to manage their money over a shorter period and as positive reinforcement to encourage good behaviour or chore completion. The consensus is that pocket money should be regular and consistent. For older children, consider splitting payments, where some payments are weekly, while others are monthly or after a long-term task.
As long as the expectations are made clear on when, why and how to pay pocket money, it can positively influence children's behaviour, hard work ethic, spending and saving habits.
How should you pay kids pocket money?
For young children, paying in cash might be a better option if they save their money physically in a piggy bank or jar so that they can see their savings grow. However, that might not always be practical, especially if a child needs to access money outside of the home or use their pocket money more regularly.
If you're splitting pocket money payments or sending larger amounts, transferring them into their bank account might be a better solution. Children can then track their deposits, spending and savings, making managing pocket money easier.
Track spending in the Westpac App
Once your child has money of their own, learning the value of money and how to spend responsibly and not emotionally becomes very important. Kids can track their pocket money payments and manage what they've spent and saved in one place, with simple visuals and graphs showing them how they're performing from month to month.
4. Tying pocket money to chores
If you decide to tie pocket money to chores, make sure you set expectations at the outset so that you avoid arguments about:
- How much chores are worth
- What chores need to be completed
- How the chore should be completed and how often
Pocket money can be a great way to motivate kids. Doing chores not only helps with running the family house but also gives young children a sense of responsibility and essential life skills.
If you link chores to pocket money, it's a good idea to:
- Make the chores regular – like making their bed every day
- Ensure chores are age appropriate – so the child’s physically and intellectually mature enough to do the chore
- Complete the chore relatively easily – don't set impossible or drawn-out tasks
- Mix up the chores – so they learn different skill sets
- Do chores together – to further enhance family bonding
Another point to consider is making separate chore payments so that if the child hasn't completed a chore, they still get paid for those they have done. It also reinforces the idea that you don't get paid if you don't do the work.
The Westpac Pocket Money feature lets you set up multiple payments to your child's transaction or savings account, which you can link to each chore. Payments will then occur automatically at the requested frequency unless you amend the amount, add extra pocket money payments, cancel payments, or put them on hold if the child still needs to complete a task.
5. Get kids motivated about saving
Saving is a long-term goal for most people, so it can be hard to keep focused when there are so many spending temptations. It's the same for children. To teach children that long-term goals can lead to bigger gains can be a hard concept to sell, especially when they can't see the 'instant' benefits. One way to keep kids on track is to set a mix of short-term and long-term goals.
If your child has a Westpac Bump savings account, you can help them set up Savings Goals. This great feature lets the account holder create and individually name 'goals', which they can then save into. By signing in via the Westpac App, kids can see their savings growing with graphics to show their progress.
Sharing Savings Goals
To encourage your child to save, they can share their Savings Goals with you so that every time they make a goal deposit, you can view it and make deposits of your own. Some parents find it an excellent saving motivator to match their child's savings dollar-for-dollar, and with shared Savings Goals, this is made much easier.
Things you should know
Westpac Bump savings account: Fees and charges apply on a Westpac everyday account, which can be in the name of the child or the parent signatory. Transfers made by the child are subject to applicable Parental Controls.
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