How to teach your child budgeting and money responsibility
Young children seem to think their parents have unlimited income, especially if they’re used to getting what they want. It’s hard for a pre-schooler or kindergartener to understand things like bills, mortgages, groceries and bank accounts. It’s even more difficult for them to understand it’s not as simple as going to the store to pick out the latest fad. With money comes responsibility, so how do you teach this responsibility to a five-year-old?
Once kids reach school age, they discover peer pressure. This may mean having to own the latest toy or most expensive pair of sneakers. As they get older their”needs”get more expensive as they want to collect books, music, jewelry and clothes, especially if everyone else has them too. So what does a parent do?Open up the wallet while giving a”money doesn’t grow on trees”type lecture?Just say”no”?Why not teach your kids about budgeting money and saving up for their own toys and clothes?
You work hard for your money, and you see where it goes so it’s easy for you to know the value of a dollar. To a child or teenager this isn’t so obvious. Making your child work for his money, however, will teach him that, perhaps, there’s a little more to it than opening your wallet and pulling out a bill. When money isn’t so easy to come by, it’s harder to part with and makes a child more apt to prioritize, or so we hope. Whether your child earns money, gets an allowance or receives gifts from relatives, teaching him how to manage it is a whole other issue.
There are several ways to go about this. The first is to be honest with your children about the family finances. That isn’t to say they need to know salaries and how much money is in the bank, but it might be in their best interests to know the family’s financial situation, especially if money is tight. Explain to them that at the moment, your top priorities are paying the bills and keeping them fed and with a roof over their head. By making a chart to show all your expenditures against your pay check, your children might have a better understanding of why there is no extra money at the moment.
Try this. When your child receives money, divide it into two categories, bank and pocket. The bank portion should of course be larger, about seventy percent, with thirty percent going to the child for whatever it is he desires. Do this no matter if it’s five dollars or fifty dollars. Some families even split the money into three categories, ten percent for charity, sixty percent for the bank, and thirty percent going for pocket money. Let him know he’s more than welcome to have the latest video game or article of clothing if he pays for it himself.(Don’t expect this to go over well, by the way.)Many times, once a child realizes he has to buy his own$150 sneakers, they won’t seem as important to him anymore, and he’ll save his money for something more meaningful.
It’s important to begin this practice as early as possible. A five-year old may not understand percentages but she can understand her money has to be put towards different expenses, and if it’s not Christmas or a birthday, she’ll have to buy that new toy herself. She’ll get it as she gets older, but in the meantime, she’s already in the habit of putting money into a savings account and using her pocket money towards a goal.
That isn’t to say, however, that your child should pay for everything himself. Of course, there are expenses the parent covers as well. If you’re shopping for school clothes and your teenage daughter wants a fifty-dollar sweater and you’re only willing to buy the twenty-five dollar version, let her know she can have the more expensive version if she makes up the difference herself. She’ll then have to decide whether or not this warrants parting with her own cash.
Try to limit the practice of advancing cash. If your child has run out of money, he’ll just have to wait and save up once again. By constantly replenishing the supply, you’re sending the message that money will always be there, even if he overspends. If he has to replenish his supply himself, it will teach him to prioritize better and prepare him for the future.
With your child having his own cash to spend, he will be taught not only that anything worth owning is worth saving for, he will also learn to prioritize and live within his means. Later, this may be the difference between having money in the bank and a lifetime of paying off credit card debt.
By teaching your children how to budget their money, you’ll be sharing a valuable lesson about life, one they’ll carry with them forever. That’s worth more than a two hundred dollar pair of sneakers any day.