Teaching Children How to Budget

As a parent, your goal is to help your children attain success as they embark on their independent lives. Teaching children to live within a budget is a critical skill, yet many parents simply do not know how to begin. Follow these strategies to teach effective money management skills to your children.

How Much Is Too Much to Share?

Before you start to teach your children to budget, it’s smart to check in on your own financial health. Do you use a budget? Do you stick to that budget? How do you make decisions about money? What lessons have you found helpful when learning to manage your money? Understanding your own values surrounding money is essential to imparting healthy money habits to your children.

It is also helpful to make sure you are on the same page as your partner. Many parents worry that if they share too little about their own finances, their children will be too shielded from the realities of managing a budget. On the other hand, sharing too much about your own budget concerns may make your kids feel anxious or upset. Work with your partner to create a plan about how much you want to share about your family’s financial situation and approach to budgeting.

Start Simple: Demonstrate the Relationship between Money and Things

For young children, money may seem like a magical resource. Dad walks into the grocery store, grabs food, swipes a credit card, and gets to take everything home. Little kids may find it tough to make the connection between money and buying things they need. Start making that relationship clearer by practicing counting money with your children. When your son wants an ice cream cone, tell him “Okay, that’s going to cost $3. Let’s count out the money and buy it.” This helps your child understand how much things cost.

Emphasize The Importance of Saving

It is never to early to instill the importance of saving money. Many parents adopt a “save, give, spend” rule for gifts that their children receive. If a child receives cash for a birthday gift, for example, equal parts may be designated for savings, giving away to a favorite charity, and spending. Beginning this lesson early in life helps kids recognize the importance of saving money.

To hammer home the message, make sure your child sees the tangible increases in savings over time. A clear piggy bank can be a great way to do this, as your child can observe the money physically accumulating. Alternatively, creating a savings chart to meet a particular goal (“Once you hit X dollars, we can go to the zoo!”) keeps children motivated to save while providing a helpful visualization of their progress.

Be Honest about Opportunity Costs

By elementary school, kids can begin to understand the opportunity costs associated with purchases. They understand that money is a finite resource, meaning that if you spend $20 on one thing, you no longer have that $20 to spend on something else. To illustrate this concept, let children join in making some (small) financial decisions. For example, perhaps you have $50 and want to plan a fun day as a family. Walk your kids through the decision-making process, weighing the pros and cons of each option in light of the money it costs.

Teach Appreciation for the Things You Have

As kids enter their middle school years, comparisons with other children become more pervasive. All of a sudden, there may seem like a limitless number of things your kids “need” to keep up with the Joneses. This can be particularly stressful as a parent, as you want your children to fit in with their peers yet cannot indulge every whim. Whenever possible, look for ways to teach appreciation for the things your children already have. Learning to be content with the things you have is a great way to avoid money mistakes later in life.

Entrust Your Child with a Supervised Budget

By the time your children are high schoolers, they can be trusted to manage a budget in a supervised setting. It’s up to your family to choose how to do this. One option is to provide a set dollar amount per month to cover all necessary expenses: clothing, makeup, food with friends, movie tickets, etc. Sit down with your child to make a sample budget, and monitor his or her ability to stick to it. This includes letting your child fail if necessary. Experiencing the consequences of blowing the budget on concert tickets, only to find that there is no money left over for new shoes, is a valuable life lesson that many children do not learn until long after they leave their parents’ home.