Meaning of Pocket Money and Its Purpose


What is pocket money?

This is an amount of money that is regularly given to children as an allowance by their parents for a specific purpose. Parents give this kind of money to their child for the child’s miscellaneous personal spending.

It may seem like a small step, but in actuality, it’s the initial footing on a journey of financial literacy that extends far beyond childhood. It is often a child’s first encounter with financial responsibility.

Surveys that support financial discipline in kids

Pocket money has several benefits and there are studies and surveys that have corroborated these advantages. For instance, a 2013 research by David Whitebread and Sue Bingham of the University of Cambridge concludes that a child’s financial discipline is between age 0-7.


Again, a 2017 T. Rowe Price survey finds that parents who give and let their kids decide how to save and spend their money on their own,  such kids are more likely to develop strong financial habits later in life.

This fundamental financial teaching tool lays the foundation for concepts such as budgeting, financial responsibility, and the value of hard work.

Origin of pocket money allowance for children

The idea of giving allowance (pocket money) to children has been in existence for centuries, however, the idea of giving allowance to children was popularized in 1912 by a parenting expert.

In her book, “Your Child Today and Tomorrow”, Sidonie Gruenberg, recommended to parents that giving an allowance to their children would teach them financial literacy by knowing how to spend what that is given to them.

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Generally, pocket money serves as a step towards nurturing financially responsible adults. It offers a safe environment for children to make monetary decisions.

It also gives them the room to learn from their mistakes and develop sound financial habits that will shape their spending in future.

Example of pocket money:

Here is a real-life example of how an 8-year-old kid “Lillian” spends the sum of $40 USD given to her by her parents as a monthly allowance. She divides the money into four equal parts ($10/week)

Week 1:

In the first week, she divides $10 into three categories: save, spend, give, and charity.

She saves $4 into her piggy bank labeled “Savings.” She’s been saving up for a new bicycle.

She spends $4 on a new book that she’s been wanting to read.

She donates $2 to a local animal shelter.

Week 2:

Lillian adds $6 to her savings, bringing her total savings to $10.

She spends $3 on a small craft kit to make friendship bracelets which plans to as gifts for her friends.

She donates $1 to her school’s charity, which is raising funds for underprivileged students.

Week 3:

In week 4, Lillian adds $4 to her savings; she spends $2 to buy ice cream for herself; and donates $4 to her local community center, which is raising money for a new playground.

Week 4:

At the end of the month, Lillian adds $3 to her savings, bringing it to $17; she spends $4 to buy a small puzzle game; donates $3 to a charity organization.

How pocket money shapes children’s financial future

From the above example, pocket money represents more than just a small allowance. It’s an opportunity to teach children about the fundamental principles of money management. Here are the benefits of pocket money allowance for kids:


Do you want to teach your kids the habit of saving? You can start by giving them pocket money. A child can be encouraged to save a portion of their allowance for larger, more expensive items. This practical approach introduces the concept of deferred gratification, teaching them that saving today can lead to more substantial rewards tomorrow.

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Giving money to kids in the form of allowance provides a platform to introduce the concept of charity. Encouraging children to set aside a portion of their allowance for a cause they care about can foster a sense of empathy and social responsibility.


You can see how Lillian spends her pocket money from the above example. With their own money to manage, children learn to differentiate between needs and wants. It’s a safe and controlled environment where they can make spending decisions, experience the consequences, and learn from their choices.

Money management:

Budgeting is an essential part of humans and you have a responsibility to play in this aspect by teaching your kids the basics of budgeting as early as possible. Children learn to plan their spending based on what they have and what they want to save. This is a crucial skill that will serve them well in their adult lives.


By handling their own money, children learn that they must make choices and bear the consequences. They realize they can’t buy everything they want, cultivating a sense of responsibility for their decisions.


Pocket money allows children to decide what they want to spend their money on. It gives them a sense of control and independence. It gives them the power of decision-making

Understanding value:

When you give pocket money to your kids, they begin to understand the true value of things. It isn’t just about how much something costs, but how much they’re willing to give up to obtain it.

The role of parents:

You might allow your children to make decisions on how they spend the money given to them, however, you still have roles to play as parents.

For instance, you should discuss money matters openly with your children, this way, you would be able to provide advice, set boundaries, and offer constructive feedback on their financial decisions.

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You can begin to introduce digital pocket money to your kids. Teach them digital banking, and cyber security through apps and online platforms designed specifically for saving.

What is the right age to start giving pocket money to my kids?

Experts like David and Sue of the University of Cambridge, suggest between before age 7. Although there no universally agreed-upon age.

How can I teach my 5-year-old boy child to save their pocket money?

They watch cartoons and are most likely attracted to visual aids like savings jars. You can buy a savings jar that has a photo of their favorite cartoon.

Should pocket money be tied to chores?

Depending on the value you want to instill in your child. For instance, if you attach pocket money to chores, the child will most likely learn that money needs to be earned.

How much pocket money should I give my child?

Age and family income are factors to determine how much you give to your child as pocket money.

Should I punish my child for spending all her pocket money quickly?

Don’t apply physical punishment, however, let them understand that they will bear the consequences of their actions, this can be a valuable lesson in financial responsibility.


Pocket money is a child’s first financial lesson in life because they get a glimpse of what it feels like to manage their own funds.

Pocket money allowance is a “hands-on” educational tool for kids because managing their own money allows them to apply theoretical financial concepts practically. 

These early financial lessons are vital stepping stones towards becoming a financially literate and responsible adult.

Managing pocket money helps children understand the consequences of their financial choices, learn the importance of budgeting, and foster a sense of responsibility and independence.

Pocket money could be weekly or monthly sum, generally given by parents to their children.

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