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“Momma, can you get me this?” My 4-year old son asks as he sets his eyes, hands, and heart on a Lego set that carried a price tag that made my eyes involuntarily widen.
Instead of saying no and swiftly directing him out of the aisle, I simply answered his question with a question of my own, “Did you bring enough money to buy it?”
He responds, “No, but you have money.”
“Well, I have the money Mommy and Daddy budgeted to buy food for meals this week,” I answer, “but that Lego set costs a lot of money. If that is something you want, you’ll have save your own money to buy it or wait to see if you get it for Christmas or your birthday.”
He furrows his brow as he considers how far away both occasions are and what this means for him for a couple of minutes before then asking, “What’s budgeted mean?”
Yep. You’re ready to learn how to make your money work for you, kiddo.
My husband and I have gone through times where we didn’t budget (or didn’t stick to the budget we made) and paid the consequences for that later on as we stress about where it all went and how to recover from the “spending sprees.” In contrast, when we stick to our budget we have peace of mind and know exactly where our money is going and what is available.A budget is telling your money where to go instead of wondering where it went. -Dave Ramsey #budgeting #moneytalk Click To Tweet
A budget is the key for reaching your financial goals, whatever they may be. Some common goals for grownups are:
- Paying off school loans
- Paying off other debt (credit cards, auto loans, etc)
- Paying off a home mortgage
- Tithing to your church
- Buying new clothes
- Buying new furniture or decor
- Buying a newer car
- Paying monthly bills on time
- Saving for a down payment to buy a home
- Saving for vacations
- Saving for Christmas gifts, food, travel, etc.
- Giving to charities and those in need
- Giving gifts to family and friends
Budgeting for Children is slightly different. Your children aren’t worrying about their house, clothes, food, etc. They rely on you for that, which is how it should be. Children don’t have debt either. Remember how nice it was before you needed to borrow from lenders? Ah, the good life. Let’s get back to that.A budget is the key for reaching your financial goals. #budget #moneytalk Click To Tweet
How to Teach Your Kids about Budgeting
Despite what many people think, financial responsibility should start in childhood, well before they are old enough for their first job or car. Laying the groundwork now, while they are still young, will ensure that they are making good choices with their money as they gain more freedom that comes with age.
Take a second to look again at those financial goals above that we grownups have. Ignore the top few that are about debt, and notice the first word of each item. You’ll see:
- Spending (as Buying/Paying)
Tithing— We as a family choose to follow the Biblical concept of tithing. Tithe literally means tenth. This means 10% of our income is given back to God through the local church. We want to encourage our son to follow the same principles and are making it a habit with him now so that it stays with him as he grows. (Read more about tithing here: Genesis 14:19-20, Proverbs 3:9-10, Malachi 3:8-9, Mark 12:41-44)
Spending— This is for the times when your child wants to buy that Hot Wheels car or Play-dough at the store. Or wants a souvenir when you visit a zoo or aquarium. They have the option to let it add up over time, but it’s really money that they’re able to blow on what they’d like. As a parent you’ll want to direct them into what they should buy, but remember that it’s their money, their choice. Let them learn from experience that buying things like candy won’t last long and then their money is gone.
Saving— Just like the name says, this is for your child to save up for something special. This can vary depending on your child or situation. It could be something like the Lego set my son wanted or another item that your child wants that would take some time to save up for. It’s about delayed gratification and teaching them that some things cost more than others. Your child might even change their minds as they save once they realize they don’t really want what they thought they wanted.
Giving— This is different from tithing. This Giving is for purchasing gifts for friends, family, and even strangers. Some people refer to this category as Sharing to keep with the other Spending/Saving S’s.
This past Christmas, we took our son to the Dollar Store with a list of family names and let him pick out 1 item for each person. He LOVED being able to use his own money and pick things out himself. He found baby dolls for his younger girl cousins, a motorcycle for his Pop-Pop, and gave me a Princess tiara to wear when he plays Knights and Dragons and he “saves me.”
I also want to give him the opportunity to give a gift to anyone he wants to, whether it’s his Pre-K teacher this Fall, someone he sees on the street, a neighbor, or whoever he feels led to give. He could possibly buy someone a cupcake, bubbles, toy, or a flower. This allows children to understand that the joy of giving outweighs the cost. (Note: the more your kids see you helping others, the more they’ll be inclined to spread the kindness.)The joy of giving outweighs the cost. #budget #moneytalk Click To Tweet
Budgeting in Action
What to do
While it seems every child has some sort of piggy bank, putting all their money into one container that doesn’t allow them to see how much (or little) they have won’t help them make decisions about their money. Instead, grab 4 clear containers and label them with the budgeting categories above. You could use mason jars, plastic dollar store containers, or whatever you like. Use tape or a post-it note for the label and write out the category or draw pictures. Just make sure your child can see the money and understands what each category is.
Decide on a percentage for each category so that no matter how much your child earns, they are keeping the same standard for their budget. Just think about how far ahead they’ll be once the receive their first employment paycheck!
You may choose to have other categories or remove some listed. Something else we decided as a family is to have 2 savings categories. One savings our son sees and can use for something he wants to purchase, while another savings category is actually a long-term savings account at the bank. Feel free to make adjustments for your family.
How much to give
This is an area that will be different for each family. Maybe you’ll want to give a quarter or dollar to each category and keep it even?
Many families determine how much to give as allowance based on their child’s age. A rule of thumb is either $0.50 or $1 times their age. So for example, my 4-year-old would receive either $2 (4 x $0.50) or $4 (4 x $1) a week, while an 8-year-old would be given $4 (8 x $0.50) or $8 (8 x $1) each week.
It is up to you to communicate to your child what they are able to earn and stick to it. It’s confusing to skip weeks or change the amount. Consistency is key. And do not put yourself further into debt if you are currently in a place where you’re overextended. Let your kiddos learn from your example. Even if you’re in a bad place, you can take a stand to show them how to get out from under it. That’s more important than giving spending money to your kids.
How do your kids earn money? Do you give an allowance? Do they need to do chores? I go into detail about my philosophy for children to earn money in another article: How to Talk with Your Kids about Money.
How to divide into categories
Let’s break down the amounts we just discussed into percentages to determine where the money goes. This is another area that you can determine for your family, but here are a couple of other examples you can use as guidelines.
Example, based on $4/week:
Tithing – 10% – $0.40
Spending – 30% – $1.20
Saving – 50% – $2.00
Giving – 10% – $0.40
Example, based on $8/week:
Tithing – 10% – $0.80
Spending – 35% – $2.80
Saving – 40% – $3.20
Giving – 15% – $1.20
How to Teach Your Kids about Budgeting Summary
First, Decide on Categories and label clear containers based on those Categories
Second, Determine how much money your kids will receive
Third, Determine percentages each Category will receive and divide those amounts into the corresponding containers
Remember that this is a learning experience for them, so it may take some time for your children to understand it all. You are teaching them habits that will stick with them for life.
I still fondly remember the envelopes that my Dad used to teach me budgeting when I was 7 years old. Those principles I learned as a child stuck with me as I became an adult and develop budgets for my own family. It also helped me as I counseled clients who came into my bank office with overdrawn accounts. I couldn’t help but wonder if that would still have occurred if those same clients had someone teach them budgeting from a young age.