Dear readers, how knowledgeable are you when it comes to finances? Do you know anything about the stock market, ETFs or investments? And if you are knowledgeable in this area, when did you start looking into it? “Those who learn to manage money early on make significantly better financial decisions in adult life and are less likely to get into debt,” says Andrea Schwendemann, author of the book “From pocket money to the first savings goal: Money, Gold and Guppies”, published by Stiftung Warentest. We spoke to her about children and finances:
Dear Ms Schwendemann, why is pocket money generally a good idea for children?
Can you learn to ride a bike just by watching? No. It’s the same with money and children: you can talk about it as much as you like. But we only really understand money when we hold it in our hands, spend it, save it and sometimes even waste it on nonsense.
Pocket money is the training ground. It gives children the chance to make their own decisions: shall I buy that ice cream now? Or shall I save for another two weeks for a comic? Studies show that children who make their own decisions about their pocket money are demonstrably better at handling money – even when differences in parents’ income and education are taken into account. Pocket money is therefore a very effective form of financial education in everyday life.
In my book “Von Geld, Gold und Guppys”, published by Stiftung Warentest, there is a template for a pocket money agreement: children can agree the rules regarding pocket money together with their parents – and renegotiate them every year. There are also tips on how to negotiate effectively.
At what age do you recommend starting to give pocket money, and are there any guidelines?
When they start school, so at the age of six or seven. This is the moment when children begin to develop a basic mathematical understanding of prices, take on more personal responsibility and spend more time outside the family.
Based on the latest study by the German Youth Institute, I recommend two to three euros a week for six- to seven-year-olds, three to four euros a week for eight- to nine-year-olds, and fifteen to twenty-five euros a month from the age of ten. Up to the age of nine, it’s better to pay weekly; a month feels like an eternity to an eight-year-old. More important than the amount is reliability: always on time, always without having to ask.
Why is it important for children to engage with finances and money at an early age?
For many children today, money often exists only as a number on a screen. No reaching into a wallet, no counting coins, no sense that something is actually being spent. A swipe on a tablet, a click in a game, a subscription that quietly renews itself every month. The question is whether children enter this world with or without protective gear.
Studies show that those who learn to manage money at an early age make significantly better financial decisions in adult life and are less likely to fall into debt. And the ‘Youth in Germany 2025’ study makes it clear just how necessary this is: twenty per cent of 14- to 29-year-olds currently have debts – a record high. This is no coincidence. Because this is the moment when a lack of financial knowledge becomes costly. Early financial education is prevention.
Should parents have a say in what their child spends their pocket money on?
The short answer: No. Pocket money is theirs to spend as they wish and should not be subject to conditions. If children have their own money but have to seek permission for every purchase, the learning effect is lost.
I know it’s annoying for parents when their child buys four packets of gummy bears with their pocket money. But do you remember what you used to spend your pocket money on? Probably not always to the delight of the adults. Children are allowed to make financial mistakes now and then. We make bad purchases too, don’t we? If a child has spent their pocket money on ice cream for three weeks in a row, they’ll realise for themselves that they can’t fulfil any other wishes that way. That’s learning through experience. The ‘3-jar experiment’ from my book helps here. Talk about it calmly afterwards, but without blame, and treat it as a conversation, never as a withdrawal of pocket money.
There is, of course, one exception: children must not buy dangerous or illegal items.
What is one tip from the book that you would most like to pass on to children?
I’d like to give them two tips. The first: read and learn as much as you can about finance. My book covers questions such as: How do interest and compound interest work? What’s the difference between saving and investing? Who falls into the debt trap? What is traded on the stock market? What is a Bitcoin? What’s the difference between a want and a need? That’s the foundation. Only then will they learn to make wise financial decisions.
And the second: keep a ‘smile list’ for a few days. Every evening, write down three things or experiences that made you happy. Draw a coin next to it if it was something that cost money. Draw a heart next to it if it was something that didn’t cost any money. After a week, count up: what made you happier more often – things and experiences with or without coins? Well, surprised at how many lovely things cost nothing?
One chapter in the book is called „Does money make you happy?“ What’s your answer?
Studies show that lottery winners are no happier after one or two years than they were before. Disillusioning. And somehow liberating. Of course, we live in a society where hardly anything works without money. Rent, groceries, nursery fees, school trips – the list goes on. Money provides security, and security is a real foundation for well-being. But once your annual income reaches around 100,000 euros, more money hardly brings any more happiness. Of course, 100,000 euros is a lot of money; very few people earn that much. And yet: what really sustains us are things without a price tag – stable relationships, a sense of belonging, meaning.
What the children discover in my book, and what I myself learn anew time and again, is that everyone has their own formula for happiness. The question isn’t: ‘How much money do I need?’ but rather: ‘What are my ingredients for happiness?’ Meeting up with your best friend, a spontaneous games night, a good book. Cooking together, friends around the table, a weekend with no plans. Those who know their formula are also better able to tell what is worth spending money on and what isn’t. The very best things in life usually have no price that can be paid with money.
