How to Teach Kids to Budget and Be Responsible with Money
When you’re a kid, getting five, ten, or twenty dollars in a birthday card is like hitting the jackpot. A million different possibilities of how you can spend that money pop into your head and most of them are probably about candy or toys.
Kids think those few bucks will buy them an entire toy store. It’s only when parents explain to you about prices, taxes, and not having enough money, does the realization finally sink. But the rush of having money of your own as a kid is a powerful feeling.
Unfortunately, many teens grow up not understanding how to be responsible with their money or understanding the value of an honest day’s pay for an honest day’s work. When they finally enter the workforce or the world of being a responsible adult, they’re often unprepared for the realities of how much it costs to live.
Teaching kids at a young age the basic principals of saving, sharing, and spending can go a long way to prepare them when they’re ready to start life on their own at college, university, or in the workforce.
Setting Financial Goals
The most basic way to teach kids to budget their money is to have them set financial goals. For example, if they have their heart set on a new video game, cell phone, or toy, sit down with them and explain to them how much it will cost.
Evaluate how much they need to buy, what they want, and then determine all the ways they will make their money whether by saving their allowance or making money doing chores, mowing lawns, or doing other age appropriate jobs.
Explaining all these things to them will help them decide if the things they want are worth the time and effort to work for, or if there are other things that are more easily attainable that they would like just as much, as well as saving for something even better.
A Penny Saved is a Penny Earned
According to an article by Yahoo! Finance, nearly 60% of Americans have less than $1,000 in a savings account. This means many people would not have an account to pull money from in a financial emergency. Teaching children at a young age to put money away for when they absolutely need it is now a critical life skill.
When your child or teen makes money, encourage them to take 10% of the money they’ve earned and put it in a place to save for a rainy day. Explain the 10% is money they should not touch unless there is a sudden financial emergency, or they suddenly won’t be able to make money for a bit. Every time they make money, they should make it a habit to contribute to their savings account and to keep making it grow.
Their savings account should be different than the savings they put away for an item they want. Of the remaining 90% of their remaining money, they should save money for things they want, while making sure they keep spending money for themselves.
Setting a Good Example
While you’re teaching your kids or teens to be responsible with their money, it’s important you don’t break the financial rules you’re asking them to adhere to. This can often be a difficult thing to do as adults have far more financial responsibilities than kids and teens.
A great way to set an example, however, is to not give in to impulse buying. Don’t simply buy things for the sake of buying them when they’re not necessary or the money you’re spending could be better served elsewhere.
This is also a good rule to follow when buying things for your children. With the increase of social media, many teens see the glamorous lifestyles of their favorite influencers and want the same things. The more common items teens ask for are things like new cars, even though the cars they have work fine. Teens are more concerned about their image than finances. It’s important to never simply give in as it isn’t teaching them financial responsibility. In the real world, no one can simply give you a car and no one can simply give you money because you ask for it.
The Power of Plastic
In the 21st century, plastic is powerful. Debit cards have virtually replaced paper money as the main form of financial transactions. For this reason, giving teens their own pre-loaded debit card is a great way to get them comfortable with making everyday purchases.
There are a couple of ways to approach this teaching tool. The first is to simply use a reloadable gift card, which can be found practically everywhere these days. Load the card with the amount of money you want your child or teen to manage for a month. Many pre-loaded debit cards and bank issued cards provide access to the balance of the cards via a website or smartphone app. Use the online information to show your child how they spent their money.
The second option is open a bank account for your teen and let them have their own debit card. This is the far more grown up option as your teen will eventually have the option of continuing to use the bank or move on to another bank that they think provides them better services or options.
In both cases, placing money on the debit card forces kids and teens to track their spending so they don’t go over the available balance. If applying the principal of saving money for something they want, it will also teach them to calculate how much they will need to save, how much money they will have each week or month, and how long it will take them to achieve their goal.
A Trip to the Grocery Store
Perhaps one of the best real-world ways to teach children and teens to budget is by taking a trip to the grocery store. Going to the grocery store with a list and a budget is something many families do on a weekly basis. There is perhaps no better hands on exercise in budgeting a parent can provide than by having to buy food on a budget.
Start with the classic grocery list. Place everything on the list you normally need. Ask your children if there are things they want to add to the list. Finally, inform them of how much money you’ve budgeted for the grocery trip and that all the important things must be purchased first and then the things they want can be considered.
As you and your children are walking through the store, remind them that there is a list you must stick to before they can move on to things they might want. Have them look at the prices of groceries and add them up on a calculator to make sure you’re staying on budget. Show them how to compare prices for similar items to see they could save money by buying a different brand, buying a larger size, or buying in bulk.
The goal is to help your children realize how expensive it is to not only feed but provide the basic house necessities they take for granted and showing them sometimes there are things you need but simply can’t afford and must choose one item over another. It’s also critical to show your children how to stretch the money in their budget so they are maximizing its use, showing them to take advantages of sales or buying in bulk so it’s not necessary to buy again so soon.
Shopping budgets are especially important for teens hoping to move away for college or university as they will have themselves to depend on when mom and dad are too far away to help.
The Gift of Charity
Of all the things it’s important to teach children in terms of budgeting their money, one of the most important may be to teach them how to save money for them to give away. The gift of charity is one thing many people do not consider when putting together a budget, simply because they cannot afford to be charitable monetarily. Instead, they choose to help by donating their time.
Speak with your child or teen ask them if there are any special causes they’d like to donate money to during the year. During the holiday season, there are many charitable organizations who need extra funds to help needy families buy gifts or help with necessities.
After putting 10% away for saving, talk putting away another percentage of their money for donation or charity. This charity fund can also be treated as a savings account, available for them to use when they learn about a cause they want to help.