The Great Pocket Money Debate: How best to pay your kids?

There's no right or wrong way to pay your kids pocket money. Only what works for your family. Here are four popular methods, and how to choose one.

Wondering how best to pay your kids pocket money?

Let me assure you:

There's no one right or wrong way to do it - with one exception.*

There are several options. Each has its pluses and minuses. You get to choose what works for you, and your child, at this moment in time. And, you get to change tack if you want to later.

This article outlines four popular methods then poses some questions to help you decide what suits you and your child best.

Four ways parents manage pocket money

I’ve spoken with a lot of parents about how they manage their child’s pocket money in 14 years of running Money School. Here's the most common approaches:

1. On Demand

You don't pay a fixed amount each week, or for a chore. Instead, the child asks for money when they want or need it. There's no catch or criteria to get the money. It's a parental decision at the time of asking.

The most common sentiment I hear from this group of parents is:

“I provide everything my child needs, so they don’t need pocket money.”

This is the only method that allows the parent to control how their child spends money, as they have to approve it each time.

2. By Allowance

This is the fixed amount approach.

You give your child a certain number of dollars a week/month/year. It’s up to the child how they spend it.

Some parents anchor the amount to age by paying a dollar per year (e.g. a 10-year-old gets $10 a week).

The money is typically not a reward or payment for completing chores. The exception is deprivation as a form of punishment. Like grounding or banning devices, you can hold back the allowance in response to poor behaviour.

3. Per Task

This method mirrors a wage or salary: do this task, get paid for your time.

You might pay different amounts for different tasks. For example, you might offer $5 for a week of stacking and unstacking the dishwasher, or $10 for a week of doing the washing up.

Linking chores to pocket money connects the concept of earning money through effort. A child who doesn’t want to earn much doesn’t have to do much. But if they want more pocket money, they need to put in more effort.

4. By Negotiation

This method not only varies the pay with the task, it requires the child to find the task in the first place. It's more entrepreneurial than the other three options.

The child sees something that needs doing, asks if you (the parent) would like them to do it, then negotiate terms. This usually covers what that pay will be and what the deliverables are. These negotiation skills will stand your child in good stead when they're taking out a mortgage or asking for a pay rise.

This method can help children learn to spot demand. If a child knows both parents detest washing the car, they can try charging a premium for that task. It’s up to you whether you’re willing to pay it.

Be warned: kids are smart. They will work out how far they can push you with this. Of course, that’s exactly what we want them to do, but be prepared not to curse when it happens.

Which method suits your child?

Again:

There is no right or wrong answer, no matter what parenting experts tell you.

It’s a matter of personal choice, and you may find you use all four types at various points over the years.

Case in point: me!

I went through several approaches thanks to my mum (Money School co-founder, Fran). It’s a cautionary tale in one way. I stopped doing the ironing at 14 ½ years, leaving Mum to iron everything except my school uniforms. I’ve ironed about twice a year on average ever since. (I REALLY detest ironing!)

With your child and your values in mind, you can decide which method workds best by asking yourself these questions:

Q1. Do you believe in paying children for chores?

I earned money for chores, so it never occurred to me to ask this question.

Then a friend of mine offered an alternative point of view.

Her take is chores are part of life. A responsibility we all share. No one pays Dad to cook dinner, or Mum to do the washing. It’s what we do for the family. My friend thought chores were more about learning to contribute to family life.

Then there are those who think chores means robbing children of childhood. So, why shouldn’t they be rewarded financially for something that takes them away from the fun of being a kid?

Ah, moral questions. Enjoy wading through the quagmire on that one.

If you are willing to pay for chores, the next question is how. Work that out via Question 2.

If you're not willing to pay for chores, the next question is do kids need their own money. Work that out via Question 3.

Q2. Should you reward time spent, or results?

Will you pay for effort – their time or the type of task they undertake?

Or will you pay for the outcome - the clean car for example, regardless of time spent?

Not a question I’d considered much until my mum reduced my pocket money for doing a crappy job of the ironing one week. Her explanation was simple:

“I’m not paying you do something I’ll need to do again myself. You didn’t do the job, so I'm not paying you full price.”

Horrified, I went on strike to protest… until I wanted to go to the movies three days later.

In case you hadn’t guessed, my Mum was of the ‘outcomes’ persuasion.

But many jobs I’ve had do not reward results in the short term. They reward time spent. If I stuffed up something while I was working, I had to do it again, but I got paid for the failed attempt anyway. Too many stuff-ups might lead to firing for poor productivity, but not immediately.

So, you could argue either way for this one – your call!

Q3. Do kids need their own cash?

At some point in their lives, our children make their own decisions. We have to give them the space and means to make mistakes so they can learn from them, so they can make better decisions later.

Which is a roundabout way of saying: they do need to have their own cash eventually.

But not until you're prepared to let them.

If you think your child is not ready to make financial decisions, you may prefer the ‘on demand’ method. Provide the cash they need, when they want it, when you have discussed it.

When you think they're ready, you might opt for a fixed allowance. Let them choose what to buy without needing parent approval - even if you don’t think their choices are great.

Here’s the simplified decision tree version of these questions:

Pros and Cons of each method

If you’re still debating which way to go, consider the pluses and minuses of each:

Method

Pros

Cons

1. On demand

* Control what they buy

* Control how much they spend

* Limited opportunity to make mistakes and learn from them

* Need another way to link effort to earning an income

2. By allowance

* Still control amount, not what is purchased

* Child can learn some money management skills

* You might not approve of purchasing decisions

* Need another way to link effort to earning an income

3. Per task

* Links effort and reward

* Child can decide level of effort

* Can send message chores are optional (may not fit family values)

* Can be costly

4. By negotiation

* Child learns to spot demand

* Practise negotiation skills

* Parent effort required to negotiate on each task

* Can send message chores are optional (may not fit family values)

*The one exception: gender gaps

I only have one golden rule with pocket money:

Do not introduce a gender pay gap.

Hard as it may be to believe in this day and age, on average, girls get paid less pocket money than boys starting at around age six.

In a mirror of real life bias, girls are often expected to do inside caring jobs for little or no money, where boys are often expected to do outside labour-intensive jobs and get paid (well) for it.

Please, please, PLEASE don’t do this.

It’s part of the puzzle of perpetuating gender pay gaps and poorer financial outcomes for women. We’ll all be better off if that stops. Set your children up for equity by sharing the types of chores across all genders, valuing inside ‘caring’ work, and equitable pay.

What’s next?

I hope you've been able to narrow down the options to one that'll work for you and your child, right now.

Remember that all four methods can work. It’s up to you when and how you apply your choice, and you can always change your mind.

Hooray for a parenting choice that’s not fraught with danger! I knew there had to be one choice like that, somewhere…

Do you have a story to share about pocket money?

We’d love to hear it – please leave a comment below.

About Money School

If you’re new here, welcome! Delighted to have you 😁

This is the blog for Money School, an Australian financial education company.

The main site is at https://www.moneyschool.org.au, but I keep our articles over here on beehiiv.

Everything on the main site and this blog is for educational purposes only. I’m not a financial adviser, nor do I play one on Netflix. I aim to help you learn about money so you can ‘choose your own adventure’.

Money School was co-founded in 2010 by me (Lacey Filipich) and my mother, Fran White. Money School offers workshops, online courses and have an international award-winning book, published with Penguin Life in 2020.

I’m also a regular media commentator on all things personal finance. If you’ve got 16 minutes to spare, you might like to check out my TEDx talk (over 1m views!) on financial independence and mini-retirements.

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