Teaching Your Children the Value of a Home Budget
How do we teach our children about money, and when do we start? How do we instill in them a sense of the importance of personal money management? How do you teach them to budget?
Money – The Basics
One of the first steps is to teach them cause and effect – that money in and of itself is worthless until we trade it in for things and, by the same token, if we want certain things, it takes money to get them.
To impress this upon a child firmly, help them to focus on their goals. Every child wants things – toys, sporting equipment, video games, and clothes. What are the things your child wants right now? Find out what it will cost (individually and the sum total) and then have your child help you figure out where the money is coming from to pay for it.
Help your child to distinguish short-term goals from long-term goals and help them to prioritize, within those categories, which items they want the most or the soonest. This will help you to set targets, both reasonable and realistic, where your child can look forward to experiencing rewards for their savings efforts sooner rather than later and with greater impact rather than anticlimactic disappointment.
Associating their personal money management with a system of self-chosen rewards will expose them to that incomparable sense of personal satisfaction that comes from treating yourself to a desired something that you had to save long and hard to purchase. It also shows that managing your money is not meant to restrict you, but to support the fulfillment of your desires.
Saving! That’s the Name of the Game
Next, helping your child to develop their very own home budget will give them a real sense of how much money they have to work with, and how to get a handle on where it’s all going. Tell them that a budget is really a very simple thing. It shows:
- where your money comes from
- where it goes, and
- how much (if any) you have left over for other things
Have them make two columns on a piece of paper. In the first column, called “Income” or, if you prefer, “Money In,” list things like money they earn from after-school jobs, weekly allowances, gift money on birthdays, holidays, etc., and any interest they may be receiving from interest-bearing savings accounts and any other investments made on their behalf.
The “Expenses” or “Money Out” column may have less in it than your own home budget, and that’s fine. At this point in their lives, most of their money coming in should go to savings anyway. If your child has any fixed monthly expenses that you require they pay for (whether partially or in full) then put it down first. That might include cell phone bills, online subscription services, after-school activities, etc.
Beyond that, you can then help your child split the remaining funds into two or three other categories: Savings, Spending Money (Discretionary Expenses) and, if you wish, Charitable Giving (or Tithing).
Devise with your child a breakdown of how much of their income each month will go into each of these other columns. Explain that the money they reserve as Spending Money is theirs to spend however they wish (within your parental discretion, of course). Then, for the money they save, set your child up with some sort of savings account of their own, be it a piggybank, a paper tally or an actual interest-bearing bank account, so they can relish in the process of watching as their savings builds.
That leaves one other category…
Giving=Getting
Children are also extremely open to helping others – even more so than their adults. Fostering this inherent desire to help others by including in your child’s home budget a percentage of their monthly income donated to a charity or charities of their choice will not only help them to develop a sense of service, but will instill in them the sense of wealth and abundance that comes from sharing part of their earnings with others despite the personal sacrifice.They should also understand that the more they give, the more they receive, though it should be emphasized that getting is not the goal.
Advanced Steps
As time goes on and they get older and more comfortable keeping a home budget, other ideas you can trickle into their personal money management training might include:
- encouraging them to take on a part-time job (however small – baby-sit, mow lawns, deliver newspapers, run errands);
- starting and building upon a joint savings for the entire family (maybe for a vacation or a new big screen TV for the family room);
- setting spending limits for items like clothes and shoes that you usually pay for, with the understanding that if they want something badly enough but it goes over your limit, they’re welcome to chip in their own money to pay the difference;
- enrolling your child in helping to contribute as much as possible to their future college costs. Starting early in saving up for this goal is the best way to succeed at it without you or your child feeling overwhelmed in the interim.
You do your children no favors by covering all their expenses without helping them to develop a consciousness around personal money management. If you really want to give your child something, this early education is one of the greatest gifts you can ever give.
Kenneth C. Kelly is the President of Strativia, a financial management software development and services company specializing in applications for personal and business use. Strativia is the developer of Budget Forecaster, a sophisticated home budget and personal finance management software package. Website: www.strativia.com. Contact: info@strativia.com
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