Teaching Kids Financial Responsibility Through Pocket Money: Tips from a Positive Parenting Coach

Introduction:

I am regularly asked questions about how we handle pocket money in our family, and so I figured it was time to put pen to paper, in a longer post so that I can properly explain our choices. When I first discovered positive discipline's approach to pocket money (to not link it to chores) we hadn't yet introduced pocket money in our family - but we were soon to take a sabbatical year, travelling around the UK, and so it was a great opportunity to test out the idea, and see how it worked for us. We also wanted to put in place the threefold division f pocket money into spend, save, give. But, before I get into our story, some background on the why and how.

The Philosophy Behind Pocket Money:

Pocket money can serve as a powerful tool for instilling financial literacy and responsibility in children. You have an opportunity to impart crucial life lessons about budgeting, decision-making, and generosity. I'm sure there's a whole other blog post about financial literacy, independence and all the other skills it teaches, but that will have to wait for another day.

Decoupling Pocket Money from Chores:

Traditionally, many parents linked pocket money to chores, with the really positive intention of teaching the correlation between hard work and financial reward. However, in positive parenting, I would argue that we want to offer two different thoughts. The first is that chores are an integral part of contributing to the family unit, instilling a sense of responsibility and teamwork. If you want to hear more about developing family chores, read my blog posts here.

The second thought I'd like to offer you is that in positive discipline, we are trying to move away from extrinsic motivation (I will do x if I get a reward) to intrinsic motivation (I will do x because I know it is the right thing to do). It's not an easy change to make, for ourselves or for our kids, because threats of punishment/offers of rewards seem to work much more quickly, but it's amazing to see the long-term results.

The Threefold Division: Save, Spend, Give

So, having talked about the why, here's our family's take on the how.

We have adopted a threefold division – saving, spending, and giving. This approach allows our kids to develop a well-rounded understanding of financial values. We certainly weren't the first to come up with this - some friends suggested it to us originally, and we found it really helpful. I think it also allows us to be more generous in the amount of pocket-money we give each week, because we see our children learning to use it wisely.

• Saving: Building a Foundation for the Future

Teaching children the importance of saving instils a sense of delayed gratification and long-term planning. Encourage them to set aside a portion of their pocket money for future goals, whether it's a coveted toy, or a special outing. We have a rule that if you want to use your savings money, the spending request needs to be written down and then you wait for 3 weeks. If you still want to buy the object, then you can.

• Spending: Navigating Choices and Consequences

The spending category allows children to experience the tangible outcomes of their choices. It's an opportunity for them to make decisions, weigh options, and understand the consequences of their financial actions. This hands-on experience lays the groundwork for responsible decision-making in adulthood. In our family, you can spend this money on anything you want to, and it can be really hard as parents to allow your children to buy things that don't necessarily align with your values (I have a hard time with magazines that have cheap plastic toys to entice you to buy them, for example). I am still learning to separate out that discussion from the moment when we are actually in the shop, as well as to accept that children all go through a 'am in shop, must purchase' phase around 8-10 years old! If you've ever seen science to back up my lived experience, I'd love to see it!!!

• Giving: Cultivating Compassion and Generosity

Incorporating a giving component teaches children the joy of generosity. Whether it's donating to a charitable cause, helping a friend in need, or contributing to a community project, giving fosters empathy and a sense of social responsibility. When we had our trip around the UK, we sat down regularly to look at giving, and think about the recent places we had been to visit to inspire where they wanted to give (an eagle watching trip led to a donation to the RSPB, for example.) Now, they are more likely to give in response to something they hear about from friends, or discussions we have about current event.

Our family rules

• Giving needs to be a minimum of 10% of the total pocket money, but other than that, there is freedom to assign pocket money to each category as they wish. They currently have roughly 1/3 in each category

• Spending money can be used as they wish.

• We provide the basics for clothes (replacing things as they grow taller etc) but if they want a more 'luxury' version of something (or branded clothes), then they fund that themselves.

• Birthday and Christmas presents. We contribute a fixed amount to gifts, they can choose to supplement this to buy a bigger gift if they wish to.

• Pocket money goes up each year on their birthday.

Conclusion:

I've tried in this post to give you both the theory and practice of how we put pocket money in place in our family. I hope that it will give you some ideas for how you can do this in a way that is right for you. The choices you make regarding pocket money can be a transformative force in your child's life. By decoupling pocket money from chores and embracing the threefold division of saving, spending, and giving, you're laying the foundation for a financially literate, compassionate, and responsible individual. Through these intentional decisions, you're not just teaching about money – you're guiding the development of a well-rounded, empathetic, and empowered future leader.

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