Pocket Money - How To Teach Your Child Money Management

Pocket Money – How to Teach Your Child Money Management

Child Pocket Money – How to Teach your Child Money Management

How we behave around money as an adult and in family life is learned early on from our parents.

Therefore, talking about money with your children at a young age will help them grow with better money management. There are many activities, which as a parent, you can do to help your children understand money matters.

  • Let children get a chance to pay for things from an early age with their pocket money. Support them to pay for items in a shop, whether it’s their toys, milk, groceries, sweets, etc. Once the child has paid the money, let them do the maths and learn better value items at a low price. Let them have a chance to pick a certain item from different suppliers or shops.
  • If you are looking to switch any utility supplier or just had a phone bill in, then talk about it during family time and include your children in the discussions. It will give them an understanding of how household finances work and let them understand some banking terms, i.e. cash payment, direct debit, online payment, and standing order payment.
  • Children want to buy something which they particularly like, e.g. a bicycle or a laptop. It is good to encourage them to set aside some of their pocket money and save for it.
  • Opening a child bank account at an early age and letting them save some pocket money there gives them an opportunity to manage their money. It is good to understand and respect money from an early age, which will help them manage it better when they grow with age and experience.

how to teach your child money management

Ideas and activities to help your child learn about money

It is important to note that your child gets influenced by how you spend money in your family and if you do value money. It gives your children a better practical understanding of how to learn money management in childhood.

Activity – Money is everywhere:

  • Talk to your child about how their grandmother or father/mother deals with money. It is likely they have good saving tips and ideas to deal with money management or income management, i.e., keeping a record of all today’s spending and monthly income. It also gives them an idea of how their grandparents manage their bills with pension income.
  • Let your children visit the bank with you to see how people are dealing with money matters. These include bank deposits, mortgage discussions, insurance, savings, etc.

Activity – Peer pressure:

  • Sell online your child’s old toys and items bought over the last few years.
  • For each item, ask why they want it and how often they have used it.
  • This teaches them that wanting what friends have is different from wanting something because they really like it.

Let Children understand Money

You should allow your child to see and handle notes, coins and cards, so they become familiar with money as a part of everyday life.

Activity – Paying with cash

When you plan to buy groceries, use cash spending and let the children deal with payment and change collection.

Let your children manage the change in their piggy bank and savings, and let them deposit money in their bank account at regular monthly or quarterly intervals.

Activity – Money Counting

Let your children deal with lots of coin counting in coin pusher machines across the UK during UK holidays and in children’s activity places.

Encourage them to witness your loss of a few pounds/coins in coin pushing machines, as you will eventually lose at such a game.

Let children understand what money is used for

As your child becomes more familiar with money, they will start to understand how it is used on a day-to-day basis.

This includes different ways people can pay for things.

Activity – Getting things done costs money as well

  • List the things you will be doing with your child over the next few days, including going on holiday and buying snacks.
  • Let them deal with cash covering their total cost in a purse or wallet, then ask your child to pay for each thing at the till using this purse.
  • If they ask for something extra, explain that this might not leave enough in the purse for other things they want to do.
  • Do not boast that you are rich and poor in money matters or management. 

Letting your children have a go

Now your child understands what money is and how to use it, it is time for them to have a go.

Let them have pocket money and the experience of choosing how to use it – then doing what they have decided.

The most important idea to get across to older children is – “Money saves, Money spends, and Money saves again”.

Activity – Save for something bigger

  • Talk to your child about something they really want, but that their pocket money will not stretch to.
  • Help them work out how long it would take to buy it if they saved all, half or a quarter of their pocket money each week.
  • Help your child decide their best savings option, then make a progress chart to keep them motivated.

Activity – What does £5 buy?

  • Give your child £5 to spend on whatever they choose in the supermarket. Repeat this when you are shopping together in the high street or a shopping centre.
  • Ask your child, whether it was hard to find something to buy for £5. Was there anything they were hoping to buy, but couldn’t afford when they saw the price?
  • Ask if it was easier to find something in the supermarket than in the high street. In addition, how long did their purchase last?

Activity – Expanding pocket money

  • Gradually expand older children’s pocket money so they learn to budget for their toiletries, clothing, sports and social activities, etc.
  • Work out what you spend on your child in one of these areas in a year, divide by 12 and give this to them as a monthly allowance.
  • When they are confident in one area, add another and so on until they are managing all their personal spending.

Usage of virtual money for future

The use of mobile phones and other digital technology is a fact of everyday life for most of us.

This means your child will be exposed to virtual money at a very early age.

If virtual money is already a part of your family life, do not forget to show your growing child this bit as well.

Activity – Watching the balance fall

  • Get the balance on your current account from your banking, mobile app or online banking and show it to your child.
  • Use your cash points  to shop for food
  • Do the activity again before and after withdrawing cash, or shopping online.

Activity – Digital world Disconnect

  • Use a mobile phone to introduce your child to the idea of “when it’s gone, it’s gone”.
  • For a younger child, set a monthly top-up limit on a basic, pay-as-you-go phone.
  • For an older child, use a contract phone that blocks any activity not included in the monthly contract fee.

Activity – Using a game power

  • Many digital games are based on the player collecting tokens to allow them to progress through levels or to get additional features.
  • Make up a game in which your child does household jobs for “tokens” they can exchange for rewards like extra pocket money or a favourite treat.
  • With teenagers, this rewards system can lead to the idea of taking a part-time job to increase their spending power.

Making money go further

By now, you have seen how children of all ages benefit from being involved in money.

Get teenage children to plan a budget for something they want to do. By looking at all the costs in advance, they will find they can make their money go a lot further.

Once children learn basic budgeting through direct experience, it is there with them for life.

As your child becomes more independent, it is good for them to hear other people’s experiences.

Activity – Exploring the full cost

  • Set a budget for a family day out – this can be a big treat or just spending a day together near home.
  • List all the things the family want to do and how much each will cost, plus any freebies.
  • Remember to include all food and drink and transport costs (bus, train, car fuel and parking).

Activity – Plan to succeed

  • If your teenager’s monthly social life allowance disappears too soon, discuss breaking it down into four weekly amounts and ways of making these last a week.
  • Let them buy many T-shirts but moan that they cannot afford shoes, help them come up with a plan for saving for footwear over a number of months.
  • If their allowance covers most personal spending, remind them to still put money aside for essentials like underwear and occasional costs like subscriptions.

Lesson: How credit works

To avoid debt, it is important that your children understand credit before becoming financially independent in their lives.

How to teach it:

Step 1: If your child wants to buy their first car, for example, you can lend your child the money to make the purchase and agree on a fair interest rate. Then, your child could pay off their debt over the following months.

Step 2To help them get used to the terms of credit suggests that they use a credit card for their petrol only and that they pay it off at the end of each month. Remind them to budget for this and make them aware of the consequences of not paying it off, e.g. a bad credit rating.

Say No and Mean it

Your child may ask for a loan or an increase in allowance and you may be tempted to give in. However, the child will never learn how the real world works, or how to live within their means, if you keep giving in. Always learn to say NO.

Most parents do an excellent job when it comes to teaching safety and good manners, but with money, few know where to start.

Research shows that how we behave around money as adults are learnt early on from our parents and helping children to understand money from an early age will help them manage it better when they reach adulthood.


Rajnish Tyagi is an experienced and Cert DR qualified debt adviser at Acme Credit Consultants Ltd. He specializes in offering suitable debt solutions to clients. He can be contacted at raj@acmecredit.co.uk

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  • Rajnish Tyagi

    Rajnish Tyagi possesses certification as a qualified debt advisor and specializes in writing about debt management and related topics. His aim is to assist individuals in comprehending and effectively managing their debts and credit issues. Additionally, Rajnish Tyagi holds the position of managing principal at "Acme Credit Consultants Ltd," an FCA regulated firm that provides tailored debt solutions to both individuals and businesses facing financial challenges.

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