mom teaching daughter to budget

Budgeting For Kids: How to Teach Your Kids to Budget

So much of what we teach our children is inspired by what generations before us taught our parents. And much of the time, this is a beautiful thing. One exception may be what we learned when it comes not only to family budgeting but also budgeting for kids.

The modern financial landscape is nearly unrecognizable compared to that of our grandmothers or even our mothers’. The importance of teaching our children how to manage their money according to today’s financial universe is more critical than ever. 

A budget is the compass of financial survival, which is why it is so important to make budgeting for kids a priority. Knowing how to budget is an extremely important money management skill that all kids should know.

Why is it important to teach budgeting for kids?

It is our duty as parents to teach our kids financial literacy so that they can make responsible financial decisions. Although personal finance may seem like a difficult topic to broach with kids, when you keep it simple they will learn lifelong skills.

When kids do not budget and track their money, they do not learn the value of products that they want to purchase nor the value of money as a limited resource. 

This leads to classic arguments, begging, and temper tantrums over things that they want you to buy for them. Anyone with children has experienced it.

However, if kids have a limited amount of their own money that they track with a budget, they naturally learn about product value, money’s worth, and the way in which things bring – or don’t bring – happiness. 

This is truly amazing for parents because it eliminates arguments, battles, and begging and creates space for fun and loving conversations about money and the things we love to buy.

How to teach kids about budgeting

Luckily, the first step in teaching your kids about budgeting is built-in. 

Whether or not we like it, the reality is they are being advertised to from the very beginning. It is truly astounding how young they begin wanting to buy stuff.

With very young children, you can choose opportunities to give them money to budget in the immediate moment. 

For example, let’s say you go to a carnival. You can give your five-year-old $5-$10 to buy whatever they want! They get to experience autonomy, independence, and control. 

Once they have spent it, they will experience the feeling of being out of money. This may initially lead to a temper tantrum, but if you don’t give in, it will most likely be the last one – over money, anyway.

1. Have your kids earn money

Kids love to earn money. As they get older, pay them for work helping you or your partner. You can start off by paying them an allowance for chores performed at home or at your work. 

For example, I used to pay my kids $3 for every 15 minutes of work. 15 minutes is a lot for an 8-year-old. And while $3 doesn’t sound like a lot, it quickly adds up.

I now have ‘tweens and as their abilities have grown, so have my expectations. They now each earn $10 per week for all the chores that we expect of them every day. 

These chores include: taking out the trash and recycling, running the laundry, folding the laundry, all dishes, sweeping or vacuuming the floors, and cleaning the bathroom.

Many kids have a natural entrepreneurial spirit. If that is the case with one of your children, here are some creative kids business ideas for them! It’s important that they learn multiple ways to create income.

2. Keep it simple

Kids’ budgets should be as simple as pie. Sit down together on your phone, computer or notebook and create a budget. You and your kids could also pick out a kid-friendly budgeting app or simple budget template.

Whatever you choose, your budget tracks how much they are earning and spending. Depending upon their age, stage, and ability, you can manage the budget, do it together, or they can be the sole controller.

3. Have them save for purchases

Part of the cornerstone of a budget is planning for future spending. Kids should learn about saving money for the things that they want. As they identify pricey items that they want to purchase, have them create a list and a plan to save money for it. 

This only works if you teach them how to delay gratification and plan for the future.

You may choose to hold their funds or even open a savings account for them— which I’ll talk about later. 

4. Let them create their own budget categories

Give them the power and control that they want over their budgets. Therefore, do not dictate their budget to them. Allow them to determine what budget categories they would like to have.

There is, in my opinion, one exception to this: giving. 

In their budget, show them how to plan for birthdays and holidays and plan how much money to save and set aside to contribute to family members’ and friends’ gifts.

5. Show them how banking works

For younger kids, I suggest you act as their bank. What I mean is – you take their “deposits” and hold onto their earnings. Then, when you’re out and about and they purchase something, you purchase it along with everything else, and then it is deducted from their “account”. 

This eliminates the complications of multiple accounts and potentially losing or forgetting cash. You want to make this simple and streamlined so that it makes your time with your kids enjoyable and does not add to your already overwhelming to-do list.

As kids get older and begin saving for more expensive items, help them open a bank account where they can deposit their earnings. When they’re responsible enough, introduce them to debit cards to pay for their own expenses.

Teach your kids about credit

Since credit card use is not going anywhere, we need to teach our kids that a budget is the bible when it comes to using credit cards. It is crucial that parents teach their children about credit, how to manage it, the importance of maintaining their budgets, and the disastrous consequences of credit use if a budget is not followed.

Not only that, but access to goods and spending money on those goods is literally in the palm of our hands – and soon will be in the palms of your children’s hands. In order to be able to navigate this reality as adults with control and purpose, our children must have learned how to budget as kids.

6. Show them how to pay back debts

Once your kids begin tracking and budgeting their money, you can become a credit agent! It is up to each of us as parents to figure out our terms and boundaries for lending our kids money. Keyword: lending.

On one hand, this is a great opportunity for them to learn about borrowing money in a safe setting. On the other hand, getting them to pay you back will be yet one more thing that you as a parent have to track and battle.

Personally, as the mother of an 11-year-old and 12-year-old, I do not give credit! I see it as both self-preservation and a way to teach them about budgeting and saving. By not lending them money, they learn how to save. 

They also learn to decide what has value and accept it when they want something that they cannot afford. They have to learn to wait and save.

Final thoughts on budgeting for kids

Our children’s ability to survive, succeed, and thrive in life depends in part upon their ability to manage their money. In budgeting, they experience the gratification of earning, saving, and purchasing. 

In turn, this gratification teaches them the value and power of money as they learn to save and consciously spend. 

Teaching them the skills to budget is a gift and you will have a great time teaching them! I wonder if we even might learn a thing or two about money and budgeting ourselves? 

Sarah Evans

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