Pocket money: introducing your child to finance

When getting pocket money, your kid discovers the value of money (Photo : ING Luxembourg)

When getting pocket money, your kid discovers the value of money (Photo : ING Luxembourg)

Spending money helps your child to become aware of money and its importance in our society. But only if you don't let your child alone with their money. To avoid this new freedom does not become a nightmare for you and your offspring, here are the six questions you should ask yourself and our answers.

Why should your child receive pocket money?

There is no legal requirement for you to give your child money regularly. It is your own free will. Nevertheless, when getting pocket money, your kid discovers the value of money, learns to make decisions, becomes more independent and begins to understand that they need to save if they want to buy something bigger. Moreover, pocket money offers you the opportunity to talk about money and budget with all the family members. Making money a taboo subject in your household will not help your child to become a financially responsible adult.

So, do not hesitate to give advice, but avoid criticizing every purchase they make. Leave your child free to do what they want with their pocket money. Making bad purchases is an experience that contributes to learning how to manage money. Of course, this rule only applies if your child buys age-appropriate products. There is no question of letting your kid buy dangerous or prohibited products.

Under no circumstances use pocket money as a reward, punishment or pressure tactic. If you introduce pocket money, your child will be entitled to it even if they have not tidied up their room or got bad marks at school. Similarly, don't give them more money if your child brings home a good report card. Instead, reward them with an activity they enjoy.

How much?

The amount depends, on the one hand, on the financial situation of your household, as well as the age and stage of development of your child and, on the other hand, on the expenses to be paid with the pocket money. According to a recent study made by STATEC, the National Institute for Statistics and Economic Studies, teenagers need between 626 EUR (for a boy aged 15) and 737 EUR (for a girl aged 17)[1] per month in Luxembourg. With this minimum budget, young people can fulfil their social roles in contemporary society. It covers food, clothes, education, multimedia, personal hygiene, health, home equipment and individual rest, mobility and social life – including 53 EUR for pocket money. Of course, you can give your teenager more than 53 EUR per month, but keep in mind that your child will not learn to prioritize if the amount is too high.

Whatever the amount set, remember to explain to your child why you are not giving them more pocket money. For example, you could make them understand what this amount means to you in terms of working hours.

At what age?

There is no fixed age. Parents often start giving money around the age of eight or nine, sometimes sooner at the age of four or later when their children start secondary school. You could also decide according to your child’s ability and attitude towards money. If your child starts asking where the money comes from, has a basic understanding of money, has learned about coins or notes or needs to spend money in everyday life, you can consider giving them some pocket money.

How often?

The frequency will depend on age. The older your child gets, the more capable they are of looking ahead and planning their spending. Therefore, it is generally recommended to give your child pocket money every week if they are less than nine and to make monthly payments from the age of ten. Whatever your decision, always respect the following rule: pay the pocket money on a specific date and on a regular basis.

What to do if your child asks for more money or an advance?

Your child has spent it all before the next payment date and is claiming an extra allowance or an advance from you? Say no, stay firm and talk to them about how to manage the money and avoid such a situation in the future. If there are exceptional reasons for overspending, you can consider granting an advance on the condition that your child repays this amount as quickly as possible. Taking out a loan is also a learning process.

And why not use an application?

Lëtzfin, a national initiative that aims to promote general financial knowledge under the patronage of the Commission de Surveillance du Secteur Financier (CSSF), has launched in 2019 an application called Lëtzfin Pocket Money. This mobile app allows young people to manage their pocket money with the active participation of their parents who act as a bank and advise their children. Children’s and parents’ mobile phones will be linked manually using a QR Code without the parents having a detailed overview of the data registered by their children.  

Are you an expat or a newcomer? Visit our website.

[1] These figures are from March 2022 and may be subject to increase due to the inflation observed in recent months.