Teaching Kids The Power Of Budgeting

It never hurts to start teaching them while they are young, especially when it comes to money matters. Teaching kids the power of budgeting helps them understand the value of a dollar and properly plan for bigger purchases. Start their financial education here and now.

Start With Income

For kids to budget, they need some type of income first. This can be in the form of an allowance, birthday funds, or gift cards given throughout the year. Birthday funds and gift cards are given during special occasions, so you can go over short-term budget goals when these funds are received. With a weekly allowance, you can create monthly budget sheets and practice systematic savings and smart spending.

Offer A Spending & Saving Space

To practice smart spending, it’s best to give your kids a space for their money. For their savings, think of a piggy bank to store their money. It’s a tangible way to see where their money goes and begin to understand what savings looks like.

For their spending, consider starting them off with a wallet or purse. It gives them a secure place where they can keep their hard-earned money and it can stay safely tucked away while on the go. Then, it’s up to them to start learning the responsibility to be aware of where their wallet/purse is when they are out.

Setting & Adjusting Goals

Whether they get a consistent allowance or their birthday is coming up, sit down with your child and discuss their wants and needs. Start focusing on what their goals will and should be when they accumulate money. If their goal is to save up for a pair of new shoes, encourage them to understand the math behind their purchase. For example, if the shoes they want are $70 but they only have $30 saved up until their allowance/birthday, then help them understand they will need to save another $40.

If they fall short or the price increases, go over how they can adjust to meet their goal:

  • Help them use their saved money to buy a different kind of shoes that’s within their range
  • Encourage them to keep saving their money to reach their goal
  • Give them the remaining funds but explain how to budget and save more in the future or create a payment plan with them and teach them about lines of credit

Allowing An Allowance

Sometimes it’s not in your budget to give your child an allowance but giving one as small as $5 a week can help them build their money skills. Plus, you can set it up to where they earn up to $5 a week based on the chores they accomplish. If they take out the trash, they get $1. If they put their clothes away, that’s another dollar, and so on and so on. This helps them learn responsibility and integrity. Earning their money helps them understand and appreciate the value of the dollar.

With their allowance, you can help them take it a step further by creating a weekly budget for them. You can encourage them to put:

  • $3 in savings (their piggy bank)
  • $2 in their purse/wallet

Starting these financial basics will lead them down a better path in the future.