As a parent it is your primary responsibility to equip your children with life skills. Learning how to properly manage a budget is one of life’s most valued skills; both spending and saving habits can be taught early on. If you show them an appropriate balance between the two, you can save them many years of financial difficulty.
1. Be A Role Model
The best way to teach your child budgeting is to show your child your own budget, comparison shop, and how you save. Bring them to the bank and let them watch you put money in a savings account. Explain to them what you are doing while you are doing it.
2. Invite Kids To Participate
- Ask your child to help you find and read the unit price numbers at the grocery store in order to find the best bargains.
- You can also give them a budget and ask them to come up with a grocery shopping list.
- Have them look in the kitchen cabinets and refrigerator to figure out what the family will need for the coming week, and then review the list together with them before going to the grocery store.
- While shopping, hand them a calculator to see how close you are to your budget as you add more items to the shopping cart.
- Encourage them to look for coupons and sales in weekly fliers.
- Review the family budget with your children, especially if you’re also trying to teach them to help cut down on expenses by doing things like turning off lights when they leave a room. This step requires quite a bit of trust. Explain to your child that details of the family budget should not be discussed with friends at school.
- Plan the family vacation together with your child, assigning them the task of researching air fare, hotel rates and rental cars.
3. Provide An Allowance
Opinions vary as to whether an allowance should be dependent on chores.
- Start with a small amount as soon as they are old enough to understand that money can buy things.
- Pay their allowance with bills and coins to allow the child to sort them into different containers labeled with different budgeting categories.
- Encourage part-time work instead of an allowance when the time is right. It will teach them not only to manage their money but also to manage their time.
4. Give Them Places To Put Their Money
- Buy a piggy bank for younger children so they have somewhere to keep their money temporarily.
- Employ visual aids such as labeled glass jars for older children so they can separate their money into different budgeting categories.
- Open a savings account so they have somewhere to save their money for the long term. Explain how interest accumulates when they are old enough to understand.
5. Develop a Budget Together
Develop a budget together that includes making short and long-term goals that include a savings plan, no matter how small. Consider the following budget as one example:
- Donate 10% to a church or a charity.
- Invest 20% in a savings account, savings bonds or the stock market.
- Save 30% for a special toy, game, or other purchase.
- Spend 40% right away on immediate or daily expenses such as lunches, school supplies, clothing, birthday gifts, and so on.
6. Establish Limits
- Don’t bail them out if they spend their money too quickly. Allow them to experience the consequences of their actions while they live under your roof. Credit card companies have learned that college students are excellent customers even though they don’t have jobs because parents are quick to bail them out when they get in too deep. If you teach your child about budgeting, you might avoid this situation in the future.
- Don’t buy your child whatever they ask for. Budgeting is about making choices. If they’re used to getting everything they want, they’ll never understand how to prioritize, which is what budgeting is all about.
- Teach them how to say “no” to impulse buying early on. This is one of the most important in ‘Teach your child budgeting’ lessons
7. Keep a financial ledger with them
Help them maintain a financial ledger or journal to keep track of where their money goes. Review their spending with them regularly.