Painless Ways to Introduce Your Kids to Budgeting

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Parents: You'll teach your children thousands of skills, from how to share to how to how to ride a bicycle. But too many parents overlook teaching their children how to manage money.

If they're old enough to have a piggy bank, they're old enough to start learning the basics of budgeting -- and these principles can help them have a lifelong healthy relationship with their money. Here are four great ways to start teaching them the ABCs of budgeting:

1. Let Them Help You with Budgeting Decisions

Walk your child through a real-life example of budgeting in action.
  • When their birthday comes around, let them assist with party planning. Would they rather have an expensive party at the laser tag place -- where they can only afford to include a handful of friends -- or have a party in the backyard where they can invite their whole class?
  • When it's time to go back-to-school shopping, let your child know how much money (in total) you'd like to spend. Then have them help you make decisions with that number in mind. Would they rather have that cool pair of sneakers or would they rather get a moderately priced pair so they can also buy a new backpack (you know, to replace the cartoon one they wanted as a kindergartner, but they swear they're way too old for it now that they're a mature second-grader)?
Letting your kids in on these choices helps them to realize they can't have every single thing they want -- and more importantly, why. But by making smart decisions and weighing their priorities, they can often have some of the things they really, really want. Instill the attitude that they can afford anything, but not everything.

2. Teach Them the Value of Hard-Earned Money

Want your kids to realize the truth of "money doesn't grow on trees"? Then start connecting the money they receive with the hard work they put forth.

While some parents give their children a blanket allowance each week for "helping out around the house" (or for doing nothing in particular), tying the money your kid earns to specific tasks helps them understand the way salary works in the real world: You do X amount of work, you receive Y amount of dollars.

Specify the "pay" for certain chores -- ranging from putting away the dishes to cutting the lawn -- based on their age: easy, low-paying chores anyone can do,and harder, higher-paying chores your kids can take on as they get older.

Bear in mind that you set the rules for which chores are worth money and which aren't. You may want your child to do certain things simply because they ought to help around the house, like making their beds every morning or clearing their plate from the table when they're done eating. Avoid any "I won't do this unless you pay me" arguments by making a clearly marked chore chart to indicate which chores are above and beyond normal duties as members of your household.

3. Let Them Make Decisions (And Deal with the Consequences)

Of course, you wouldn't put a 10-year-old in charge of their college fund, but when it comes to small, discretionary purchases, giving your child the freedom to make decisions can teach them some valuable life lessons.

Even more valuable is teaching them you won't always bail them out if they make a bad decision; they'll have to learn to deal with the consequences and do better next time.

We're talking spending decisions like whether to blow that $5 in chore money on candy or save it for more tokens at Chuck 'E Cheese -- not world-ending in your mind, but to a kid, they can be huge.

4. Set Up Separate Piggy Banks

When kids get money, their first instinct is to spend it immediately. Unfortunately, many adults have that same instinct. Help your child break free from it now by teaching them how to set their money aside for different goals, some short-term and some long-term.

Rather than having one piggy for all their money, give your child three piggy banks labeled "spend now," "save for later" and "share with others." Whenever they get any money, discuss with them how they'd like to divvy it up among these three banks.

You'll be teaching them how to budget, and also how to wait patiently for rewards that won't come right away.
  • "Spend now" is for fun stuff in the immediate future, like getting popcorn at the movie theater or buying the latest comic book when it comes out.
  • "Save for later" is for bigger, long-term goals they want to work towards, like buying a new video game or going to a concert with their friends.
  • "Share with others" will help you instill a spirit of charitable giving in your child. Help them choose a cause they personally relate to, like the local SCPA or helping hungry kids overseas, and remind them of the importance of sharing your wealth with those in need.
Paula Pant ditched her 9-to-5 job in 2008. She's traveled to 30 countries, owns seven rental units and runs a business from her laptop. Her blog, Afford Anything, is a gathering spot for rebels who want to ditch the cubicle, shatter limits and live life on your own terms -- while also building wealth, security and freedom.
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