Budgeting Personal Finance

Budgeting with Kids: Money Lessons for Every Age

Beth Trach
Written by Beth Trach

First, the bad news: American schools aren’t teaching kids about money. Only 12 percent of teachers have any form of financial education in their curriculum, and that sad fact has led to the United States placing fourteenth in the world when it comes to financial literacy.

That’s not very impressive for one of the richest nations on earth.

The good news? You, as a parent, are actually in the best position to teach your child about budgeting. You get to start early, and you have the ability to give them an allowance so they can get great practice with money before it really counts.

If the idea of teaching your kids to budget is overwhelming, relax. The trick is to make your lessons hands-on and age-appropriate. Here’s how to get started teaching the most important money lessons so you can raise a child who knows how to manage money like a boss by the time they turn 18.

Budget Lessons for the Little Guys: Pre-K-Grade 2

Even kids who are just starting to learn addition and subtraction can begin to understand some money basics. Here’s what to focus on with small children to lay the foundation for solid budgeting skills later in life:

  • Define Needs Vs. Wants: If you’ve ever heard a toddler wine “But I neeeeed it!” at the grocery store, you already have a sense of the problem here. Teaching children the difference between wants and needs is as simple as bringing it up in conversation whenever you have the opportunity — usually while shopping. Asking them to think about what category different items fall into is an important skill to help them delay gratification later, when their own money is on the line.
  • Three Jar Allowance: Even young children can get a small allowance to help teach them about money. A couple dollars a week is all it takes to get the point across. The more important part is teaching kids to divide their cash into three categories: Charity, Spending and Saving. This will help them see how their money accumulates over time and serve as a great basis for future budgeting categories. And if it’s good enough for Elmo, it should be pretty easy to get your kids on board.

Budget Lessons for Big Kids: Grade 3-6

Once your children are handier with the basics of math and money counting, they’re ready for more involved lessons about budgeting. Try these ideas to layer on some more important lessons:

  • Get Some Skin in the Game: You may not want to share all the down-and-dirty details about your family’s finances, but it’s a good idea to talk about money on a regular basis. An easy way to make budgeting real is to let your kids know how much your family has each month to spend on extras like eating out or going to the movies. Let everyone help decide how to spend that discretionary cash, but when it’s gone, it’s gone. Deciding whether a stack of pizzas or a trip to the movies is worth it is a real-world lesson in financial decision-making.
  • Neither a Borrower Nor a Lender Be: Now that kids have had some practice with an allowance, it’s time to stop buying them stuff. No more candy in the grocery store or a new pair of flip-flops just because they’re cute. The whole point of an allowance is to run out of it and have to save it back up for something they really want. This process teaches your child to shold some of that money in reserve for a rainy day trip to the craft store. You’ll ruin the effectiveness of an allowance if you’re always buying them things, though, so inform them that they can buy whatever they want — with their own money (and no lending cash on the side to speed up the process, either).

 Budget Lessons for Teens: Grade 7-12

Ah, the teen years. Time to get a job! Whether your child babysits or buses tables at a local diner, they now have the skills to draw up a written budget and start planning for the future: 

  • Open a Bank Account: Whether you choose a passbook savings account or co-sign on a checking account with a debit card (handy for shopping online), your child should definitely have a back account once they have a job. This will streamline the savings process and allow them to learn how to use the ATM and a checkbook appropriately. Bonus points if they can earn a little interest in the process.
  • Track Spending: A real bank account may have some fancy software with pie charts that help you track spending, and this can be a valuable lesson for your child about how much money they actually spend on video games or bubble gum. You can also print a simple tracking worksheet to help your child figure out where their money’s going each week — and maybe inspire some smarter saving and spending strategies.
  • Write a Budget: Print out a simple budget worksheet with basic spending categories and set your kid to work. They should start with their monthly income from all sources and continue to fill out expenses — including a line item for savings. If they don’t have any expenses, it might be time to consider asking them to pull their weight by pitching in a little for a piano lesson or other recurring item just to have some type of fixed expense to work around. Show them the basics of making sure expenditures don’t exceed income, and encourage them to check in with their actual expenses at the end of the month to make necessary adjustments.

Remember, you don’t have to work up a PowerPoint presentation or invest in a laser pointer to impart these lessons to your kids. Instead of looking at financial literacy as a one-time lesson, think of it as an ongoing conversation that your have as a family. Making money talk a normal part of family life will crate healthy attitudes about money and leave your kids feeling competent and ready to manage on their own when the time comes.

About the author

Beth Trach

Beth Trach

Elizabeth Trach is a writer and editor living in Newburyport, MA. She also sings in a band, grows almost all her own food, and occasionally even cooks it. You can catch up on all her adventures in frugal living and extreme gardening at Port Potager.

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