Knowing how to budget is incredibly important. Creating a realistic budget and sticking with it can save us from making major financial mistakes, including living beyond our means and incurring credit card debt. I wish budgeting was taught at school, but as far as I know it isn’t, and so it’s up to us parents to teach our kids how to budget. Fortunately, life creates many opportunities for us to do so.
This is what we do with our own kids to help them learn the concept of budgeting:
Giving your kids a monthly allowance is probably the best way to teach them the concept of budgeting. A monthly allowance will help then learn that they have a set amount of money for the month, and that they must be able to stretch that money until the next “payday.”
When I take my pre-teen daughters clothes shopping (one of their favorite activities these days – BIG surprise :)) I like to give them a set budget for that particular store visit. So, we might agree that I will purchase the necessities (basic new fall clothes such as tops and jeans), and they can pick a few “fun” items such as fashion tops, scarves, or excessively torn jeans – the kind that is not allowed at their school.
I love watching them carefully budget when we do this. Say they have a $50 budget that day. They go through the store, pick the items they like, try them on, and then, once they have a few items they absolutely love, they go through the difficult process of deciding which of the garments they will give up. I love this process because I believe it reinforces that you do NOT take all the items and finance your purchase with debt. Staying within your budget means sacrificing and giving up on things. I want them to learn at a young age that they don’t have to buy everything they want or like. That it’s OK to tell yourself, “I love this item, but I can’t afford it,” and put it back on the shelf.
Paying for Non-Necessities
Of course, for the model above to work, the kids should be the ones paying for non-necessities. If we were to buy them everything they wanted, we wouldn’t have been able to create opportunities for them to learn how to budget and spend one’s money wisely. So in our family, we pay for necessities (what exactly this includes is up to each family to decide) and the kids pay for extras. Very torn jeans that are not allowed at school are a good example of what might be considered as an “extra!”
Talk About Money, Cost of Things, and Budgeting
When it comes to teaching my kids I usually prefer showing by example, but sometimes talking is important too. In our family, money is NOT something we avoid talking about. We talk about money, and we share our own dilemmas and decisions with our kids. For example, when shopping with them, even when we pay, we keep the discussion going about prices of items, what do those prices mean in the context of our budget, and why we prefer to look for items on sale or won’t buy overpriced cherries at the beginning of the season.
We also discuss larger family expenses with them. For example, we recently had a conversation about their private school tuition. We’re Jewish, and have decided to send them to a Jewish private school for 6 years (kindergarten and elementary school) to teach them basic Jewish concepts and Hebrew. For middle school, we’re planning to move them to the excellent local public school system (can’t wait).
So we talked about the total cost for six years of private school for both of them. They were shocked to realize that the cost is comparable to the price of a house in some areas (but not in the expensive Bay Area of California!), and that the tuition money could have bought us a shiny new car each year. I think it was a good discussion, because it made them realize that during those six years when Jewish education was a priority, we gave up on other things. One of the most important concepts of budgeting is to accept that you can’t have it all, and that if you choose to pay for something, you will have to give up something else, so it’s all about prioritizing.
We also talked about the kids’ 529 accounts and the total cost of college. Again, we compared that to the price of a house, of a car, of clothing – trying to help them grasp the meaning of these numbers and realize that Mom and Dad are cutting in other areas in order to finance the incredibly high cost of higher education.
The Basic Message: You CAN’T Have It All
One of the things that gets people into financial trouble is a sense of entitlement – the belief that they “deserve” certain things, maybe because “everyone else” seems to have them, and so they buy these things with credit, even if they can’t really afford them. One of my major goals with my kids is to drill into them that they should not expect to have it all. On the contrary, they should fully expect to give up certain things in order to finance other things that are more important to them.
How are you teaching your kids the concept of staying within a budget?
This post was featured in the Best of Money Carnival.
Btw, there's a pretty nifty tool that motivates your kids to do chores. It's called MyJobChart.com. With a free account, they can earn points for finishing jobs you assign them, good towards free merchandise. Give it a try. It's completely free!