How to Teach Your Child to Budget from a Young Age
The ability to create and stick to a budget is a life skill that is essential for every child to learn. However, financial acumen isn’t something that can be discussed once and internalized. Instead, it needs to be a knowledge base that is honed over a lifetime. With that in mind, we have a few tips to help you teach your child to budget from a young age. The earlier you begin their education, the better off they will be in the long run.
Teach your child to budget: 5 important tips
1. Explain the difference between wants and needs.
One of the first concepts that you’ll want to teach your child is the difference between a want and a need. Put simply, a “need” is anything that is essential for survival. Namely, the basic food, clothing, and shelter. Meanwhile, a “want” is anything that goes beyond those three conceptual categories.
An easy way to start teaching children about the difference between needs and wants is to discuss this topic at the grocery store. Explain to them that many fridge and pantry staples would fall into the category of “needs,” while extras like ice cream or candy are more likely to be considered “wants.”
Then, once you’ve had the discussion, have your child list out examples of their needs vs. their wants. When they are finished, go through the list with them and explain why each item should or should not fall within a particular category.
2. Consider giving them an allowance.
These days, allowances are a controversial topic among parents. Some believe that paying children to complete chores is an essential part of teaching them the value of a dollar and a hard day’s work. Meanwhile, other parents feel that children should learn to contribute to the household without expecting a monetary reward in return. While there is no singular right answer, an allowance can be a good teaching tool.
If you feel uncomfortable paying children to complete more basic chores like cleaning their room or making their bed every morning, consider offering an allowance whenever they go above and beyond. For example, you might offer it when they take out the trash without being asked or do the dishes after dinner. With this method, they will have an incentive to work hard for their money, especially if they’re saving up toward a special expense.
3. Provide money in cash.
When you do give your child money, even if it is for a birthday or another holiday, do your best to give it in cash whenever possible so you can teach your child to budget. At its core, giving cash will allow them to actually see their money dwindling away as they spend it. While offering a check or a co-managed debit card may feel easier in the moment, it is often harder for children to gauge the impact of each transaction.
If the money is in cash, on the other hand, they will be instantly able to see how much they have left after they make a purchase. Plus, when it runs out, they will be able to easily infer that they need to earn more in order to be able to have some more to spend.
4. Use the three jar method.
In addition to giving children physical bills, many parents use the three jar method to teach their children budgeting basics. As the name suggests, this method involves having your child use three jars to manage their cash flow: one for immediate spending, one for saving, and one for sharing, or charity.
Setting up this activity is simple. Start by labeling the jars and allowing your child to decorate them however they want. While they are working on their art project, explain to them how each jar should be used and what types of expenses each should cover. Then, going forward, whenever your child receives money, help them to budget between the three jars and to spend accordingly.
5. Embrace key moments when you teach your child to budget.
Finally, our last tip is to embrace teachable moments. This tip is really two-fold. On the one hand, you don’t want to shy away from bringing your children into money discussions. While they should obviously remain age-appropriate, for example, if you are planning a family vacation, you might include them in the budgeting process. Alternatively, one night while watching TV, you could explain to them that you pay a bill each month for the service.
In addition, allow them to make mistakes. In this instance, while it is up to you to cover their basic needs, you can allow them to budget for some of their wants. At the same time, allow them to feel the consequences of not budgeting on a small scale. For instance, if they spend all their money on candy, and don’t have enough for a new toy that has caught their eye, don’t be so quick to bail them out. Instead, explain what happened and what they can do to change the outcome next time.