Do you want your kids to be smart with money? Read on for simple tips to help kids learn how to budget and manage money.
Budget. Don’t let this word scare you or your kids.
The truth is budgeting is simply having a plan for your money.
If you have a plan for your money, then you won’t wonder where it’s going or whether you will have enough or not.
If your kids learn to have a plan for their money, then they will be on the right path to be a financially stable adult.
The main purpose of a budget (or financial plan for your money) is to help you live within your means and meet your personal financial goals, because you know how much money is coming in and you know exactly where it is going!
A budget can also help you prevent (or pay off!) debt and live a debt-free lifestyle.
Don’t you want this for your kids as well?
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Why You Need to Teach Budgeting to Kids
From the time they are little, kids need to start learning about money.
This doesn’t mean you sit them down and make them fill out worksheets like they would at school. Learning about money and budgeting should happen organically. There are plenty of opportunities from daily life that can serve as lessons for kids.
One small part of teaching kids about money and budgeting is helping them understand what a budget is and how to set one up and follow it. Showing them how to creating a budget will prepare them for financial success and independence.
By following a budget, they will learn to:
- Keep track of their money
- Set financial goals (short and long term)
- Spend within their means (and thus avoid debt!)
- Develop critical thinking and planning skills
- Be in charge of their money
Budgeting for Kids – Some Basic Guidelines
It might feel overwhelming to try and teach your kids about money and budgeting, but it doesn’t have to be very complicated.
For anything you want to teach them about money, it helps if they can actually apply it to real life.
Kids learn so much merely through observation and normal day-to-day living.
You can:
- Use everyday situations to talk about money
- Compare prices while shopping at the store
- Discuss family vacation plans and costs
- Compare prices for entertainment and dining out
- Talk about setting financial goals and saving up for an item (as a family or as an individual)
- Explain needs vs. wants
- Talk about salaries
- Discuss different occupations and the pay rates associated with them
- Set them up with chores or an allowance to help them learn the connection between work and money
- Be a great example yourself
- Get and stay out of debt
- Pay your bills on time
- Compare prices and talk about why you chose to buy this instead of that
- Give age-appropriate examples (Money Lessons for Kids)
- Let them use cash to buy items by themselves at the store
- Open a savings account for them when they are young and help them contribute to it regularly
- Show them how to save up for something they want (you can use a savings tracker like this one)
- Help teens make a plan to pay for college (or plan to graduate college without debt!)
- Teach them how to be entrepreneurs
- Share your money successes and failures
- Be honest and open
- Let them learn from your mistakes
- Talk about what you did well
- Teach them to give back and help others who need it
Budgeting for Kids
The fact is, since kids learn by watching and observing, you can’t tell them about budgeting and how to be money-smart if you are not actually doing this yourself. They will see right through you.
Make sure you know the basics of budgeting, so you can teach them with words and by your actions and example.
How to Create an Easy Budget for Kids: 4 Simple Steps
If you are just starting to teach your kids, stick with a very simple budget using these 4 basic steps:
- Write down monthly income
- Write down monthly spending
- Subtract the spending total from the income total
- Repeat monthly!
Write down income – Unless your kids have a job and are regularly working and getting paid, their income sources might be limited. You can start with an allowance, commissions for chores, or gifts of money (for birthdays and holidays, for example).
Write down spending – Write down all spending for a month. It can help if you sort the spending into 2 separate categories: needs vs. wants. This makes it easier to see what to cut out (i.e. wants) if needed. For kids, most spending will be for wants. Explain the concept of fixed spending (things like rent, electricity – or, for kids, bus or lunch money, for example) and changing spending (impulse buys – like splurging for a soda or candy)
Subtract the spending total from the income total – Add up the income and the spending and subtract. If the amount is positive, then you have enough income to meet your needs! A negative number means you overspent.
Repeat – Repeat this process monthly to make it a habit and get an overview of your spending habits. This way you can see if you are consistently overspending and make adjustments to your budget if necessary.
You can teach your kids that left over money from the budget can be put into savings (toward a larger financial goal). Kids and teens can use this budget printable to keep track!
Related: Allowance or Commissions: Should You Pay Your Kids for Chores?
Financial Goals
After following a budget for a few months, you can help your kids set a short-term financial goal (like saving up for an item they would like or a special outing).
Write down the total cost of the item (or outing/event) and help your kids see how much it takes to get to that amount. Use the budget to see how much they can save each month and how long it will take to reach their goal.
They can use a savings tracker like this to help keep track of their progress toward the goal.
If necessary, discuss how they can cut back in some area of spending in order to meet this goal.
Note: This is also a great time to discuss the importance of having an emergency fund to help cover unexpected expenses. If an unexpected expense pops up, how will they pay for it?
Let’s see how these basic budgeting concepts apply to each stage of youth:
Budgeting for Preschoolers
Little kids live in the present moment – if it’s out of sight, it’s generally out of mind.
Since small children are very visual, many experts recommend using a give, save, spend piggy bank. Transparent jars are great because then kids can actually see the money as it builds.
Let them handle their own money and give and spend their portion.
My 4 year old is super thrilled to take her money out in a tiny purse when we go on a shopping trip to use her money.
Saving is a tough concept at this age, so you can focus on the give and spend jars and gradually introduce saving, reinforcing all of these concepts as they grow.
Budgeting for Elementary Kids
At this age, you can start focusing more on the save bank.
Often, typical distributions at this age are 10% to the save bank, 10% to the share/give bank, and the rest to spend.
Help your child set a short-term financial goal and make a plan to save up for this purchase. A savings tracker is helpful here.
Budgeting for Middle School
If you start talking about money and budgeting at this stage of your child’s life, then you will probably need to be more specific and detailed when discussing the budget.
If your kids have already been saving a bit and spending their own money, then they will probably have a good understanding of budgeting at this point.
Then, you can introduce investing, as well as talk about how people make money and discuss ways kids can make their own money too!
Budgeting for High School and Beyond
If they haven’t already, your teen should start a very simple budget (like this one), with some basic teen expenses (cell phone, eating out, entertainment, car insurance/gas).
Kids in high school should be paying for some of their own wants (for example: cell phone, gas and car insurance). Determine what they will be paying for and how much it will cost each month.
Help your teen create their own categories for their budget, list their income, and learn to manage their expenses.
Have them meal plan and budget, shop, and prepare a meal (important life skills!)
Have honest discussions about your finances – help them learn from your wise money choices (and also from your money mistakes!).
Talk about debt and teach your kids how to live and be debt-free.
Encourage them to set up an emergency fund and talk about why they need it.
Talk in depth about investing and the power of compound interest – and encourage them to start a Roth IRA when they start working.
I really enjoyed this very simple book on investing and managing your money. It was easy to follow and understand and would provide a good starting place of conversations with your older teens:
Additional Reading:
Smart Money, Smart Kids by Dave Ramsey
Make Your Kid a Money Genius by Beth Kobliner
Simple Path to Wealth by JL Collins
If you start young and have money and budget conversations throughout their childhood, your children will be more prepared than many others for managing money as an adult. Review these basic budgeting concepts and ideas regularly throughout their childhood and your kids will be able to take care of themselves as adults! What other tips have you found helpful?
