Why? We give our children pocket money mainly because it teaches them:

  • The value of money – “this is too expensive” is less meaningful to a child than “this costs fifty times your pocket money”
  • Saving – extremely hard at the beginning, but the only way to buy that jacket

+ some derivative skills:

  • Budgeting and financial planning – “you’ll need to save five weeks to be able to buy x”; “I need y so that I can eat ice cream every day during the holidays”
  • Negotiations and trading, esp. with siblings
  • Ownership and boundaries, something otherwise hard to teach with siblings
  • Agency and responsibility

 

How much? depends on what you would like them to buy from it. More if they need to buy their lunch / clothing, less you want to cap annoying spending habits (e.g., too many sweets). We try to intervene as little as possible when they spend it, so we don’t give so much that we will be annoyed all the time about how they spend it. (We may still intervene when they try to use what they bought.)

Keep in mind that siblings will want the same treatment when they arrive at that age and are prone to feel jealous if the current gap is too large.

 

How? We have a standing order on a revolut account (comes with a debit card). Search the market for the best deal, as they vary.

Contingent on conditions (e.g., household chores, grades)? I’m all for setting incentives and we do this for things that are clearly outside their normal responsibilities. For example, we pay the older one to give her little sister trumpet lessons. (She promptly made a stamp collecting card to incentivize her sister to take more lessons.) We used the local horse riding school’s volunteering scheme as a reference: they ask the parents to tip any kids leading their children’s ponies 2 pounds for half an hour.

We also give our children age-appropriate responsibilities, with a general notion that age-appropriate pocket money increases come with increases in responsibilities. I think it may translate more to a threat from the perspective of the children, but we’re fine with that so far


 

What to do with their earnings:

Earning money is another experience we would like our children to have, so that they learn about

  • Again, the value of money, as in how hard it is to earn it, the responsibility that comes with commitment to a job etc.
  • More capacity for saving over different time horizons and how (again, large market with many products tailored to children and with varying tax advantages, ISAs)

As with pocket money, there are many ways for parents to deal with their children’s earnings and they are probably all appropriate for their situation. These were our considerations:

  • We want our children to receive some of their earnings now (rather than when they are 18) so that they feel what it means to work for money
  • We do not want our children to have too much disposable income. In our case, they receive their weekly pocket money worth for each half day of work, aligned with our thoughts about what is roughly appropriate as a weekly budget
  • We deduct expenses from earnings as we would for taxes (even though they do not pass the threshold for taxes) to teach them about profitability and cost effectiveness. We only deduct marginal costs such as transport and extra lessons for audition prep, but no fixed costs such as weekly music lessons as they are – well, fixed costs (their earnings are not enough to commit to any lessons
 if they were and they wanted to sign up for some workshop we may think about it)
  • We discussed various savings options for the remainder with them and illustrated potential outcomes at different time horizons. They made their own decisions, and we went with them to open their own accounts and celebrated it (even though we didn’t read the fineprint well enough and those accounts now changed their rates! Very disappointing)
  • In the unlikely scenario of superstardom, we really would like to avoid a Britney-Spears-situation in which we live far beyond the standards we can afford without our children’s contribution, but we understand that we may need to make some changes. Here our solution is an agreement for sharing the mortgage expenses should their earnings exceed a certain threshold. I’ll tell you how this goes if this ever happens 😊