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Pocket money can be a fun and rewarding way for children to learn about money, how it is earned, spent, saved and invested. And there are lots of life lessons thrown into the mix along the way.

Whether you choose to give regular pocket money to help your child to learn the advantages of saving or you would like them to earn pocket money by completing chores, the same skills and lesson can be taught about the value of money.

Check out Pocket money – getting started.

The advantages of pocket money.

Physical money

Kids can learn the value of money by handling it and seeing the differences in colour and size. With guidance, younger children can learn the value of the ten cent vs dollar coins. For example - how many ten cent coins are required to make a dollar? Similarly, with notes, children can learn the colour, appearance and tactile difference between the different values.

When showing children how to add coins and notes, it is important to write the figure down on a piece of paper or type it on a computer screen so the child can visualise the total amount. This will help them later when they are looking at the shelf price of an item in a store to understand the value of the item.

Online money

Once your child can recognise the total value of the coins on a piece of paper, you can progress to showing them digital money on screen. This could be viewing a children’s or personal savings account on internet banking or an app, where they can see a total amount with deposits and deductions. The running tally of an online account can assist the child to develop a budget and savings goal. 

Money management

For all ages

  • Earning – understanding what it takes to earn money and what opportunities are available.
  • Effort vs reward – not every task pays the same amount, based on skill and time to complete the task.
  • Spending – the pleasure of spending what you’ve earnt and also learning the displeasure that once it is spent it is gone.
  • Budgeting – learning to split your money into pools, such as ‘spending, sharing and saving’ which help a child to learn to budget for bills and expenses later in life.
  • Saving – earn your way to a goal that isn’t currently affordable by saving up for it. These could be long or short-term goals.
  • Sharing – the joy of being able to give to others. Help them evaluate and select a charity they would like to support with a donation.

For older children and teens

  • Borrowing – find out what options are available for borrowing money and learn the pros and cons of saving for an item rather than paying back a loan. Warn them about the dangers and pitfalls of credit cards and short-term lenders.
  • Investing – learn that you have the potential to earn more money through interest-bearing investments.
  • Interest – learn the difference between earning interest in a savings or other type of account, vs paying interest in a loan, and the high-interest rates associated with credit cards.

Delayed gratification

With guidance, a child should have the opportunity to make a decision about how their money is spent. The decision to save and wait for an item they want is a skill that can be taught, heightening the feeling of gratification when they achieve their goal. By delaying gratification the child with also learn the value of an item. For example, a $5 toy will be more treasured when they realise the number of chores they needed to complete to earn their goal.

Personal achievement

The feeling of getting to enjoy the item or experience the child saved for can be a great way to teach them to save and budget well into adulthood. It teaches them not to rely on credit to make ends meet. The pride in personal achievement will continue to spur the child into setting a future goal and making more conscious efforts to achieve that goal.

Children by nature are creative thinkers. Allow them to explore ways they can earn money through innovation, and by encouraging their entrepreneurial thinking, it will in turn encourage them to find ways to earn money while motivating them.

Mistakes are lessons

Children will make mistakes with their money but that’s ok! They might spend all their money on an item in a splurge, which will teach them that when they want a highly sought after item, they’ll need to save and earn it rather than spending on a whim for short-term gain. Caregivers can guide their children to think about the benefits of saving. Mistakes can be a valuable lesson on how to save, manage a budget and not overspend.

It’s never too soon to start teaching your child about the value of spending, saving and sharing. If you’d like more information on the fee-free LLL Children’s Savings Account, visit www.lll.org.au/child

The LLL prides itself on providing savings accounts that are simple to operate, with a great interest rate and no fees or charges. The LLL has a variety of savings accounts: personal and joint accounts; guardian accounts for children; and business accounts, including for self-managed super funds and not-for-profit organisations.

As an Authorised Deposit-taking Institution (ADI), the LLL is regulated under the Banking Act and by APRA.

This advice is general in nature and does not take into account your personal situation, needs or objectives. Please consider the Disclosure Documents to decide if this product is right for you.

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