Teaching Your Child to Budget
I know the word "budget" is not one that most people want to hear, but technically the word budget means "a plan for using your money" according to Webster's dictionary. A plan for your money doesn't sound so limiting does it? So whether you want to call it a budget or not, making a plan for your money is one of the most important steps in personal finance. Teaching your kids to budget and make a plan for their money is just as important. The earlier you can get them on track with this the better.
Have you ever seen those piggy banks with three different slots? Lots of religious book stores carry them. This is a great example of teaching budgeting to very young kids. Typically the slots will be for tithing, saving and spending. Parents all over the world help their kids drop their hard earned coins in these banks every week. If only kids grew up to remember to give away some money, save some money and then spend what was left. I bet more people would manage their finances better if they had been taught this from an early age.
Letting your children want things from stores, earn the money for them and then go back and buy them is one of the best teaching tools a parent can use. Kids can make the connection between working for money and then getting what they want very quickly. It will probably start small with a piece of candy or pack of gum, but by the time your kids are in elementary school they should be pretty good at handling their money this way. Reminding them of their wants when handing out allowances or paying for a job will help them make a plan for their money.
Last January my eight year old daughter decided she wanted a Nintendo DS ($160 for the system and a game). I am not against these handheld gaming systems, but I will not buy one. All of my kids know that if they want one they have to save their own money to buy it. She is the only one to take me up on this so far. We sat down and made out a budget for her to save the money. My kids have a job of walking the neighbor's dogs every weekday and she was getting $15 each week for this. Normally I have the kids put a portion of their pay into their college savings account each week, but since this was such a lofty goal I let her stop contributing to this account for awhile. She did still have to give $1 a week to our church. She decided to save $10 a week towards the DS which would leave her $4 each week for day to day spending. It took her only two months to save the money for the DS (she did extra jobs around the house to earn more money). She is so proud of her purchase that she budgeted and saved for and I am proud of her. At eight years old she totally gets the concept of budgeting. It is never too young to start.
There are many ways you can help your child budget. You can do what I did with my daughter and help them save for a larger purchase. You can help them allocate their weekly allowance into categories. You can give them a set amount of money for clothes shopping and let them figure out what to buy to get them through a season. You can let them buy their own holiday presents for people. Even if you give them the money, helping them make a plan for spending it will teach them budgeting. Whatever you do, it will take some coaching from you - but it will be worth it.
As my kids get older, I plan to start giving them a weekly allowance. I will start small and gradually increase the amount based on what I plan for them to cover with their allowance. By the time they are in high school I hope to be giving them money only once a month. They will have to make it last all month long for the things we agree for them to cover.
My goal is for them to be completely knowledgeable and proficient with all things money by the time they head off to college. I will let them plan a menu and do the weekly grocery shopping (with my guidance) as a way to teach money skills. They will need to realize that if they spend $30 on one night's dinner then there won't be enough money left to cover meals for the rest of the week. Just like if you hand your ten year old $50 to buy Christmas presents for the family they need to realize (with your help if needed) that they can't spend the entire amount on one person. Helping your children work through these real life situations are the best teaching moments.
Talking with your kids about your own budget is a great teaching tool. Try not to say "we don't have the money" but instead try saying "that isn't in the budget right now". They might question it and you can explain in as much detail as you want, depending on their age. You don't have to even talk exact numbers, but explaining how each month's salary has to cover a certain number of expenses and possibly showing them the percentages of your expenses will help them to understand where the money goes each month. They should be able to get that if you budget $100 for entertainment for the family each month you can either go to the movies two times, or do something more expensive only one time. Letting them help in the decision making process will help them learn.
Budgeting is not a bad word in my mind. I want my kids to budget their money each month, just like I budget my money. I believe that teaching our children how to budget, to make a plan for their money, is invaluable knowledge that I wish I had learned at a younger age.