How to teach your kids about budgeting

How to explain budgeting to your kids

Although kids often learn best by doing, they’ll need a bit of context to understand budgeting. Tell your children that budgeting is a plan to use their money wisely. Give them real-life examples to enhance their understanding. For example, simplify a food budget. Tell them how much money they have to go grocery shopping for the week and how many meals they need. This will give them an introduction to income and expenses, and you can use this as a basis for more techniques and examples. If you need more help, learn how to teach your kids about money.

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Methods to teach your kids about budgeting

Give them a weekly allowance for completing chores

You can’t budget without an income. Teach your child the value of money by giving them a weekly allowance for completing chores. Create a chore list—taking out the garbage, making their bed, cleaning areas of the house, etc.—and decide on a weekday to give them an allowance. By providing them an allowance, you’re helping them understand the relationship between work and pay. When they complete their work, they get rewarded. Not only is this foundational for budgeting, but it may help them jumpstart career ideas. While this is great for introducing the concept of money, be conscious of how much money you are giving them and how often. Allowances can affect their perception of contributing to your family, and they may expect a reward whenever they help around the house.

Once they’ve received their money, you can help them decide what to spend their money on, how they can save it, and more. Help them calculate their monthly income by adding up their four weekly allowances. This provides a building block to begin the budgeting process.

Show them the difference between needs and wants

When budgeting, it’s important to distinguish between needs and wants. Needs should always prioritize in a budget over wants. Define needs and wants for them. A need is something they must have to survive, whereas a want is something they can live without. For example, a new video game may seem important now, but food is necessary to survive.

Do an expenses calculation

Once a child understands income and the difference between needs and wants, you can show them how to establish a monthly budget. Show them their monthly income by adding up the weekly allowances. Then, you can factor in expenses. Make the learning experience more hands-on by asking them to identify what they want to spend their money on and what items they need to buy. Do they need new clothes? How much of their allowance do they need to save? Are there any new toys or games they want to get? Once they have accounted for their expenses, subtract expenses from their income.

Create save and spend envelopes

Help them understand how savings and spending accounts work by creating envelopes. Kids can divvy their weekly allowances into save and spend envelopes, based on their monthly expenses. It’s important to emphasize saving in the budgeting learning experience. Teach them about the various things they need to save for—housing, college tuition, vacations, etc.—so they can start saving early. If there’s a goal your child is saving for, you should determine the time period they want to achieve that goal and how much additional money they need to save.

Create a spreadsheet for their budget

Although a spreadsheet may not be as appealing, it can be a useful tool to help them account for their money. You can use Microsoft Excel to itemize their monthly expenses, account for their income, and provide a summary. There are plenty of downloadable templates to choose from.

Budgeting is a skill that can be taught at an early age by taking advantage of a few techniques. That way, they can succeed without financial instability. Learn more budgeting tips and tricks to help them prepare for their future.