---
title: How to talk to kids about inflation, the cost of living and pocket money.
description: How to talk with your kids about pocket money, the impact of inflation and the rising cost of living on your family.
---

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# [How to talk to kids about inflation, the cost of living and pocket money.](https://learn.heykit.com.au/learn-it/how-to-talk-to-kids-about-inflation-the-cost-of-living-and-pocket-money)

 Written by [Kit](https://learn.heykit.com.au/learn-it/author/kit) | Nov 1, 2022 10:51:00 AM

#### Start with the family budget

To help kids connect the dots between inflation and the impact on your family’s finances, kick off your money chat by explaining how the family budget works. Cover income, weekly expenses, saving and needs vs wants.  

Now they’ve got their smart little minds around the budget, it’s time to explain what inflation is.  

#### Explaining inflation to kids

Put simply for kids; inflation is the increase in the prices of goods (stuff like groceries) and services (like a haircut) over time. 

What causes inflation? One of the main reasons is supply and demand. When many people want to buy a product (demand) but there isn't enough of the product (supply) for everyone to have one. 

For example, 100 people want to buy a new phone but there are only 25 new phones. The phone is hard to get, so the cost of the phone increases. 

#### Kids will get less for their money

Demonstrate inflation by picking their favourite toy, game or device. Explain the toy costs $50 today and if they have $50 of pocket money saved up, they can buy it.

However, in a year from now the toy will cost $55 so they’d need to save $5 *more* to buy the *same* toy.  

Or, tell them when you were a kid, a movie ticket cost $5.70. Now a trip to the cinema costs $18.00. This is inflation at work! 

> The bottom line? The same amount of money will buy less stuff in the future.

#### How does inflation impact our family?

Now that your little grownup has a basic understanding of inflation, share how this *less stuff for the same money* deal impacts family spending. Crunching the numbers on the weekly grocery shop can be a good example. 

Explain you spent $200 with the debit card on food. You got everything your family needs and wants to eat (including yummy cookie ice cream!) for the week. 

When prices rise because of inflation, $200 will no longer buy everything on the grocery list. You’ll need to spend $220* *to get the same items.  

But where does the extra money for groceries come from? Explain that as a family, you’ll need to work together to find ways of saving money on some things to cover higher prices for other things.  

For younger kids, you could demonstrate this idea by setting out 3 budget jars. 

1.  Groceries  
2.  Toys  
3.  Petrol 

Put 5 buttons in each jar, representing money for each item in the budget.  

Along comes inflation (hello!) which means the weekly cost of groceries is now 7 buttons. Take 2 buttons from the Toy jar and put them into the Grocery jar. Now, with 7 buttons we can get all the groceries on the list - including cookie ice cream.  

Make budgeting and saving a fun family mission. Part of this mission may mean reducing pocket money. 

#### Let’s talk pocket money

> In Australia, kids get an average of $12.04 pocket money per week, that’s $626 a year!

With the cost of living rising, [52% of Australians have taken actions](https://www.finder.com.au/cost-of-living-report) to make their dollars stretch further. For some families, cutting pocket money means more wiggle room in the budget.  

Here are two approaches you might consider taking: 

**Parents may need to reduce pocket money  **

Let’s say your mini-me does 5 chores each week to earn their $12 weekly allowance. 

They could receive a reduced amount each week but only have 4 chores, rather than 5. 

**Parents may need to pay kids less, for the same tasks **

Another option could be reducing the amount of pocket money for the same amount of chores. It might be the less popular choice of the two! 

Let them know by reducing their pocket money, you’ll be able to put extra dollars towards other parts of the family budget.  

Encourage kids to brainstorm more ideas to save money and “outsmart” inflation. Keep it fun and fear-free so they don’t end up worrying unnecessarily about family finances. 

[Sign up to Kit today](https://learn.heykit.com.au/) and begin your children's journey to financial literacy. 

*Consider the PDS, FSG, TMD and other important information at heykit.com.au/legal. Any advice given is general in nature and does not take into account your objectives, financial situation or needs so please consider whether it is appropriate for you. *

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