Tips for pocket money: teaching children to manage money

For many children, receiving pocket money is their first step towards financial
independence. In that moment, it is no longer their parents who decide what they can
buy: they have a measure of independence when it comes to purchases. But that also
means that they can suddenly realise how quickly money can be spent.

The right time to start talking about money depends on the personal development of the
individual child. In general, as soon as children develop an understanding of numbers,
they will also be able to understand the value of money.

Teaching children to handle money responsibly

The important thing is for parents to talk to their child about how they can spend their
pocket money, and which expenses their parents will continue to cover. In order to learn
how to manage money responsibly, children should be allowed to decide for themselves
what to do with their money. After all, that’s what pocket money is for. Even though
parents may find it difficult, they should allow their child to spend the money however
they want. This is the only way that children learn that they can only buy what they want
if they have enough money for it. German law even contains a “Pocket money clause”
(Section 110 German Civil Code (Bürgerliches Gesetzbuch)), allowing children 7 years of
age and over to enter into legally binding transactions without permission from their
parents – provided they use their own money, such as pocket money, to do so.

How much pocket money is too much?

The amount of pocket money should depend on the age of the child. You can find
guidelines online: the Federal Ministry for Family Affairs suggests that primary school
children should get around €1.50 to €2.00 per week, and that 12-year-olds should be
getting up to €23.50 per month. However, there are other approaches: for example, you
might tie pocket money to the year your child is in. So, they get one euro per week in
year one, two in year two, and so on.

Learning to save money: from a piggy bank to a bank account.

Pocket money is all very well, but does it help children learn to save money? Or only to
spend it? In the past, children put money in a piggy bank as a way of visualising having
money or having none. For younger children, a piggy bank is still a wonderful place to
keep their pocket money.

The age at which a child is ready for a children’s bank account will differ from child to
child. Once they are ready, parents can transfer their pocket money into their account on
a monthly basis. Don’t worry: while a children’s bank account is opened under your
child’s name, you as the parents have access to the account until they turn 18. The child
can also only access the money in the account up to an amount approved by their parents.

However, parents cannot grant their children permission to take out loans –
doing so requires approval from the courts.

In addition, children’s accounts are a non-borrowing accounts, so the child cannot
overdraw and go into the negative. They can only transfer money or pay by direct debit if
they have enough money in their account.