Do not give your children an allowance

Most parenting advice still says the same thing: start giving your children pocket money early and they will learn how money works. The logic seems sound. Hand over a few dollars each week, watch them learn to save, spend wisely and budget. Job done.

Except the research suggests it rarely works like this.

A growing body of evidence shows unconditional pocket money, the kind handed over each week with no strings and little conversation, does almost nothing to build financial capability. In some cases, it actively undermines it.

To be clear, this is a data-backed argument for being far more deliberate about how, when and why money enters their hands.

The Evidence Against Automatic Pocket Money

Research from the University of Cambridge found financial habits begin forming as early as age seven. By the time most families introduce a formal allowance, the groundwork is already being laid through observation, conversation and modelling. The weekly handover, without context, arrives too late and teaches too little.

Recent New Zealand research reinforces this. Steve Agnew and Valerie Sotardi at the University of Canterbury studied over 5,370 New Zealand adolescents aged 12 to 18 and found something revealing. The strongest predictor of financial confidence in young people was not whether they received pocket money but whether their family was financially open. Children whose parents talked openly about money, shared household budgeting decisions and modelled thoughtful spending developed significantly stronger financial confidence and intentions than those who simply received a weekly amount.

Put differently: the conversation matters far more than the cash.

Why Pocket Money Without Context Backfires

When pocket money arrives reliably and without conditions, children learn one thing clearly: money appears. It arrives on schedule, regardless of effort, contribution or understanding. This is the absence of a lesson in value and money.

The problems tend to follow a predictable pattern.

• ‍Entitlement replaces gratitude. When money is expected rather than earned or discussed, children stop seeing it as something to be thoughtful about. It becomes a fixture, like Wi-Fi or hot water. Research published in the Journal of Economic Psychology has found children who receive unconditional pocket money are less likely to value effort, delay gratification or develop budgeting skills.‍
• Paying for chores kills intrinsic motivation. The instinct to tie pocket money to household tasks seems sensible, but psychologists call it the crowding-out effect. Once children are paid for tasks they should do as contributing members of a household, the internal motivation to pitch in evaporates. Remove the payment and the behaviour disappears with it. Nobody pays us to cook dinner or clean up after ourselves, and our children need to learn the same principle: some things get done because they need doing.‍
• Money becomes disconnected from real decisions. A child who receives $10 a week but has no financial responsibilities is not learning to budget. They are learning to spend. Without a reason to weigh trade-offs, prioritise or sacrifice, the allowance becomes a consumption exercise rather than a financial education.

What Actually Builds Financial Capability in Children

If the weekly allowance is not the answer, what is? The research converges on a few principles worth taking seriously.

Talk about money openly. The Canterbury research is emphatic on this point: family financial openness is the single most powerful driver of financial confidence in adolescents. This does not mean burdening children with household stress. It means letting them see how financial decisions are made. Invite them into a conversation about the family budget, explain why one purchase makes sense and another does not, or talk through a decision to save rather than spend. Children learn far more from watching a considered trade-off than from receiving a payment.

For more on teaching your children about personal finances, we have written a companion guide covering practical approaches at every age.

Let them earn beyond the household. Rather than paying children for chores they should do regardless, encourage them to find ways to earn outside the family. Mowing a neighbour's lawn, selling items on Trade Me, walking dogs, or helping elderly neighbours with tasks they cannot manage alone. This builds the connection between effort and reward in a way a standing weekly payment never can.

Create real financial decisions. Give children a fixed amount for a specific purpose and let them manage it. School uniform money for the year. Sports fees for the term. Spending money for the school holidays or an EOTC trip. The lessons emerge from the constraints, not the cash. Running out of money in week three because too much went on snacks in week one is a more powerful teacher than any parent lecture.

We see this pattern regularly when partnering with families achieve their financial plans. The parents who raise financially capable children tend to share a common trait: they treat money as a subject for open conversation, not a tool for convenience. The value is not in the plan itself but in the thinking, trade-offs and decisions the process demands.

New Zealand Is Catching Up

The New Zealand Government announced in 2025 that compulsory financial education will be introduced from Year 1 in schools, beginning in 2027. Finance Minister Nicola Willis noted at the time that too many people leave school without the basic financial literacy needed to make sound decisions. It is a welcome step, though it does not replace what happens at home.

Programmes like Sorted in Schools and MoneyTime are already reaching hundreds of New Zealand primary and secondary schools, but the research is consistent: parents remain the primary source of children's financial learning. Schools can supplement, but the real work happens around the kitchen table.

If your children have a KiwiSaver Scheme account, it is also worth using as a practical teaching tool. Show them the balance, explain how contributions grow over time, and discuss the concept of compound returns in terms they can grasp. A real account with real money in it makes the abstract concrete.

What Matters More Than an Allowance

Giving children pocket money is not inherently harmful.

The problem is how most families do it: automatically, silently and without any connection to effort, conversation or decision-making. An allowance handed over week after week, with no discussion and no expectations, teaches very little that transfers into real financial capability. It may, in fact, teach something unhelpful.

The alternative is simple. Talk about money. Let children see how financial decisions are made. Create opportunities for them to earn, save and spend with purpose. And resist the urge to make it easy, because the difficulty is where the learning happens.

If you are thinking about how to set your family up for long-term financial success, or want to ensure your own financial habits are worth modelling, we are happy to have a conversation.