Pocket money can be a minefield. How much to give, when to start, how strictly to set limits on top-up amounts, and can it be saved towards Barbie accessories? Not to mention, should you allow borrowing against future weeks' pocket money?

Most children don't stick to their limits and manipulate parents into letting them go over-budget, says a recent Yorkshire Bank report. British children are wheedling a massive ￡57 million extra per week from indulgent parents, it finds.

One mother of twins, who had fixed a sensible amount of pocket money for her son when he was six, found him asking for more some years later at a key moment. 'We were climbing to the top of Ben Nevis, so I was out of breath, and it was quite public. Fred said, "Our pocket money isn't enough, can we have some more"?' And climbers all around were taking sides, cheering or tut-tutting. She later agreed that a rise was overdue.

Although pocket money may seem relatively unimportant in the total family budget, it can shape the next generation's financial behaviour for life.

As one affluent friend said: 'We don't always remember to give Hannah pocket money but I think we should. She has said to me, "Can we afford this?" and expressed worry about running out of money, which in our case is ridiculous. So maybe a regular budget would help.'

The consensus is that it would and that children's skill at negotiating top-up funds won't help them learn valuable economic lessons.

The Government and the Financial Services Authority agree. The FSA is trying to improve financial consumer education, pointing out that one in four of us can't work out the change from ￡2 after buying three items totalling under that amount.

'Consumer education is vital and the earlier it starts the better,' says Carol Sergeant, the authority's managing director.

While the Government does not give direct guidance on pocket money, it does address the issue of personal finance in its personal social and health education key stages in the National Curriculum.

Children of seven, the age most families start thinking about pocket money, should know money comes from different sources and can be used for different purposes.

Those aged between seven and 11 should be getting to grips with looking after their money, and realising that future wants and needs can be satisfied through saving. Here pocket money is a crucial tool. If children are bought everything by generous parents the lesson about saving is lost.

It's a question of looking after the pennies. Piggy-bank economics are a basis for sensi ble adult financial management. According to research by Mintel, the average pocket money in Britain is around ￡3 a week for seven to 10-year-olds, and about ￡6 or ￡7 a week for the 11-to-14 age group.

TV financial expert Alvin Hall advises in Your Money or Your Life, a ￡6.99 Coronet paperback: 'It's beneficial to give kids a regular allowance and to require they manage some of their own recurring expenses through that. For example, they might be expected to use their allowance to pay for bus fare, cinema tickets, CDs or school supplies.'

This provides key financial lessons: 'How to create and stick to a simple budget; how to save money towards a goal; how to choose among competing priorities; how to shop and spend wisely'.

Hall says early failure can be useful. When kids blow the lot on new music or clothes, they're learning something - although not if, as the Yorkshire Bank report suggests, Britain's parents are picking up the tab.

Apparently three-quarters of parents admit to having extended their children's credit in a given week. Interestingly, one in 10 has done this on the quiet, suggesting an awareness that this may not be a good solution. This is the familiar 'You can have some more, but don't tell your mother/father' syndrome.

Pocket money has been around for a long time. Probably American in origin, the idea dates back to at least the early 1880s, according to social historian Professor Hugh Cunningham. 'There's a late nineteenth century reference when an American called Mr Abbott recommends a regular allowance be given to children.' By 1899, the US Society of the Study of Child Nature was 'wary of giving pocket money, and concerned about how it was spent'.

That concern continues today for most parents. Margaret, a teacher and single parent based in Kent, says she weighs up the arguments if son Callum asks for more cash. 'It depends - if I want him out of the way, I might give him money to go out, but if it's for something I don't approve of, no.'

The Fairtloughs family from London attempt to steer a middle course. Sarah, mother of Anna and Amy, says, 'You're always worried whether you're giving too little or too much.

'Sometimes I disapprove of what my teenage daughter Anna buys. She recently bought a pink mini skirt with a friend, more of a pelmet really, for ￡40, which I felt was worth about ￡5. But that's her choice.'

Her husband Alex remembers feeling he got too little pocket money, then a reasonable allowance that had to pay for his clothes. 'We're trying to teach a sensible approach,' he says.

Financial habits are handed down through the generations. Geoff Greer, head of operations at the Yorkshire Bank, says: 'If your parents bought you everything you wanted, didn't talk to you about bills and budgeting and never asked for chores in return, that has probably set you up to be the same way with your kids.'

The important shift in the Victorian era was when young workers stopped paying money into the family budget and started keeping it for themselves. This gave them immediate independence, something pocket money can still achieve.

The final message from the bank survey is that it is kinder to be tough about finance with your kids. Adults who weren't baled out financially as children have above-average confidence with money, and manage it better. They tend to behave the same way towards their children, which may help keep the next generation solvent.

A pocket guide

1. Keep up to date with paying pocket money - same day each month, right amount - to prepare kids for monthly budgeting in later life.

2. Don't over-protect your children from financial realities. Let them know what things cost.

3. Try not to let them get over-budget on pocket money. If they do, ask for chores in return for baling out, or lend against future funds, keeping tabs on the repayment.

4. Consider starting a savings account for your children. Those who start the habit early tend to continue saving as adults.

5. Let them make the odd mistake and learn from it. You may not approve of everything they do with their pocket money, but did your parents always like what you did?

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