The boy was walking in Doune Terrace near to Moray Place at around 3pm last Sunday when the older youth, who was with a boy aged seven to ten, approached him and engaged him in conversation.
The youth then punched the victim in the face and stole the small amount of money.
The suspect and the child fled towards Stockbridge and the victim attended the ERI, where he was treated for minor injuries to his face.
Police are now appealing for anyone in the area who may have seen anything suspicious to come forward.
The suspect is described as white, between 16 and 17 years old, 5ft 11in tall with black shaved hair. He was wearing a black tracksuit top and grey jogging bottoms.
He was with a white boy aged between seven and ten years old with brown shaved hair and also wearing a black tracksuit top and grey jogging bottoms.
A police spokesman said: "This is a very concerning incident given the age of the victim and the fact that the suspect has a young child with him at the time."
Anyone with any information should contact Lothian and Borders Police on 0131-311 3131, or Crimestoppers on 0800-555 111.