“How do you teach your kids budgeting?” Mr. Bean was asked by a coworker who knows how passionate we are about teaching personal finance and that we homeschool our kids.
“How do you begin teaching kids, even as young as 3, about budgeting?”
His first response was “what do kids that age care about? Food, of course!”
Kids watch our every move. In order to teach them anything, we have to set a good example ourselves and then use something they care about to enforce it.
Budgeting for Preschoolers and Early Elementary
In my earlier Teaching Kids About Money article, I discuss how kids learn so much from just being involved in our everyday money matters.
Let them watch the numbers beep and add up on the screen at the grocery store. Have them help run your card or count the cash when you pay for things.
At home, let them sit next to you while you pay bills; they probably won’t last more than a few minutes (or seconds). But let them see you add and subtract numbers and discuss what certain bills are for.
If they’re old enough to not put money in their mouths, let them handle coins and dollars. Show them the different types and numbers on them. If they’re able, count how many of each coin or bill there are. (And learn about handwashing after handling money 😉 )
You can count ten $1 bills and trade them for a $10 bill. This is a more advanced concept for beginners, so don’t worry if they get upset when they think you’re taking all their monies. Just make it fun for wherever level they are.
When they’re ready, get them a piggy bank and practice saving coins or dollars they find on the road or receive as gifts. They can get excited by counting and looking at their “Giant Pile of Money” build-up.
Snack Budgeting
When it comes to learning budgeting, use your kid’s favorite item: SNACKS!
Maybe they have a favorite granola bar. Show them how many granola bars are in the box.
Say there are 6 bars and they want to have 1 bar every day for snack, they are going to have to budget out their bars, or else they will run out!
If they eat 3 bars the first day, because it’s a brand new box (Payday), they won’t have enough to last for the whole week. They’ll be granola bar-less before the end of the week. (AKA Broke) The horrors!
It’s super basic but helps them grasp the idea of savings and delayed gratification, while still enjoying a yummy treat every day.
Budgeting for Older Elementary and Middle Schoolers
When kids are getting older and have had a good amount of exposure to money and counting, it is time to get them more involved.
When my kids were 7 and 9, they wanted a way to earn money. There were treats and toys at the store I would not buy for them because they were not budgeted for. They had to pay for them themselves.
At the time, birthdays, the tooth fairy, and random grandma gifts were the only money they had access to. They needed a more consistent paycheck coming in. So we had to think.
We were unwilling to pay them for regular household chores. We believe that if you’re a part of the household, you are responsible for keeping the house in order, just like the parents. We don’t get paid for doing the dishes, why should they?
As I discussed in my Small Home article, we live in a small condo. The normal “earn money for extra chores” ideas didn’t work for us either.
We don’t have an attic or garage to clean. No yard to mow or hedges to trim. And because this was during Covid lockdowns, no neighbors needed dogs walked.
So we had to figure out some other way to get the kids earning money that wouldn’t mess up our own budget but would still give them responsibilities and a regular payday.
The Power Bill
During Covid, our electricity bill started climbing because we were home so much more.
This gave us the idea to get the kids earning money, being more responsible, and not messing up our budget.
We had a family sit down and explained how high the power bill had become and what could be done to bring it down. Then discussed with the kids how much money we budgeted for the power bill every month.
The kids were told that if they could keep the electricity bill below our budgeted amount every month, they could split the difference. But if it was above our budgeted amount, they would be responsible for the difference.
They were pumped and started running around the house turning off lights and clicking off power strips.
The next month, our bill was much lower and the kids were finally able to receive a monthly paycheck.
As with all paychecks, they were taught that a large portion (50% in their case because they have no bills right now) was to go towards savings and investments first. Then the rest could be spent however they like.
Both of them usually just stick it in their piggy banks most months, but sometimes a pack of Oreos or a new lip balm color are just too good to pass up. And now that they have their own money, I don’t have to say no.
Budgeting for Activities
As tweens, kids this age are beginning to come into their own. They want to feel their opinions are respected and are beginning to push back on parental advice a bit more. But at the same time, they need that cuddle time on the couch and to know you have their back when they screw up.
Now that Covid lockdowns are ending, activities are starting back up. As all parents know, kids’ activities can really start to become expensive if you’re not careful.
We try to find as many free or low-cost activities as possible (Check out my article on free activities) but sometimes there are classes or camps that just have to be paid for to attend.
To give the kids more input, as well as responsibility, we have begun to discuss our “activities budget” with them. We tell them how much we have available for activities this year and then go over the costs of the different things they want to do. As well as the time commitments.
With this information, they pick and choose what they really want to do.
Of course, we still talk it through with them, but they feel more connected with the activity. They know what they might have had to give up to choose a specific activity and therefore value it more.
Make the Connection that Money is Time
The tween years are a great time to get kids to really connect with money.
Let them see how much things cost. Have them shop for the “must-have” items all their friends have.
Then have them look at job listings to see how many hours of work it would take to afford those “must-haves.”
Build the connection that purchases aren’t just about money. Every time you choose to spend your hard-earned dollars, you are really choosing how to spend the hours of your life.
Is buying that cool new video game really worth a half-day, or more, of work? For some games, sure, they’ll spend hours a week playing with their friends. For other games, they spend 30 minutes playing it and never touch it again.
Teach them to think about purchases in terms of time spent earning that money just as much as the actual money spent.
Budgeting for Teens
My kids have not yet reached their teen years but I love the advice given by Doug Nordman and his daughter Carol Pittner in their book “Raising Your Money-Savvy Family for Next Generational Financial Independence.”
They describe how when Carol was growing up, Doug and his wife taught her about money throughout the years. When she became a high schooler, they began giving her complete responsibility for handling money.
At the beginning of each school year, they would transfer their entire budgeted amount for her costs (clothes, field trips, phone bill, school supplies, lunches, bus fare, fun money, etc.) into a checking account for her to manage.
She would have to budget her money to ensure her classes and bills were paid for, in full, each month. And then could use the rest for shopping and activities she chose.
Giving thousands of dollars to your teenager to manage may sound extreme to many parents. And it is!
But if you have spent the time teaching your kids throughout the years about how to manage money, budget, and save, it is a great way to let them practice these adult skills while still in the safety of your home.
Learn Through Experience
Some of the things Doug mentions Carol learned was to find deals to make her money stretch further:
- Instead of spending money on bus fare every day, she’d ride her bike or walk to school
- Rather than paying for an unlimited phone plan each month, she found a discount provider and only paid for what she needed
- Even simple things like purchasing a 6 pack of soda at the store each weekend. She could enjoy them through the week instead of buying a single bottle from the vending machine every day. It makes a big difference in the weekly budget!
These are all great things to learn before heading out into the adult world. And since they are still under your watchful eye, you can help them think through decisions.
Better to Learn Under Your Roof
Kids will mess up with money at some time or another. We all have at some point!
But if you give them some responsibilities early, at least they do it when under a loving parent’s roof. You can help them learn and recover from mistakes rather than when they’re out on their own, creating debt that could haunt them for years.
While many kids might not be ready to handle a full year’s worth of money in one big deposit (most adults can’t even handle that) dividing the deposits into monthly or biweekly deposits might be easier to help them learn to manage money.
And when your teen gets their first part-time job, you can continue to help them learn to budget. Encourage them to open a Roth IRA and put a portion of each check-in. (Super Simple Investing) Starting to invest early can give them a huge advantage to their future financial success.
Get them in the habit of saving first, before spending their money on other things.
Wrap Up
Kids are like little sponges. They learn and absorb everything around them. So take the opportunity to teach them all the things you didn’t know about money when you first started out.
Don’t let money be a taboo topic in your home. Discussing finances, age appropriately, helps your kids understand why you make certain decisions and prepares them to become financially independent in their own life.
What do you think? How do you teach kids budgeting? What do you wish you had known before going out on your own?
Let us know in the comments and join the conversation.
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