How To Teach Budgeting To Kids

Do your children understand the value of a dollar? Kids often think that getting money is as easy as going to the ATM machine, where the money magically appears.  In fact, the concept of earning and budgeting money is foreign to most kids. Teaching your children how to budget is an important step in instilling in them a lifelong respect for money. Here are some tips on how to teach budgeting to kids:

1. Teach your child how to earn money. Before your child can learn to budget, she needs to have some money to work with. Even young children can understand the concept of working for money. Have your child do household chores and pay her a reasonable allowance each week. Don't get caught up in how much allowance other families are giving their kids each week--come up with an amount that seems reasonable in exchange for the work that is done and is within your own household budget.  It is best to set a weekly allowance amount instead of just paying your child for each chore she does. While an allowance can be a valuable tool in helping to teach your children about the value of a dollar, you want to be careful not to let it turn into a situation where your child expects to be paid every time you ask her to do something. 

2. Buy a piggy bank. A piggy bank is a child's first tool when it comes to saving money and budgeting. Almost every child has a piggy bank--and most kids love to hear the jingle of the coins as they drop them in the bank. LeapFrog's "Super Saving Teaching Bank" is a wonderful bank for preschool- and school-aged children--coin deposits are tallied and the child can even set a goal amount that she wants to attain. 
3. Use visual aids. Money jars can be a very beneficial tool to use to teach your child about budgeting. Give your child three jars to deposit money in--one jar can be used for everyday spending, one jar can be used for saving for big ticket items, and one jar can be used for long-term savings (to later be deposited into a bank savings account). A fourth jar can also be implemented, for money for charities or other worthy causes. 
4. Open a savings account. Children of all ages should be taught that it is important to budget money to be put into a savings account. It's wise to open a savings account for your child when she is still a baby, since many babies receive monetary gifts for their christening or birthdays (and any money given to you on your child's behalf should be socked away in her bank account as well). To help make your child's savings grow, deposit at least half of all birthday and gift money into the bank account and teach your child to deposit at least half of all cash gifts and allowances into their bank account. Once your child is old enough, she will enjoy making trips to the bank with you to deposit her own money. Be sure to show your child how her money grows and how the interest is calculated each month. 
5. Help your child calculate how long it will take to save up for something that she wants.  Say your child has her eye on a new video game that costs 50 dollars. Undoubtedly, it will take many weeks of allowances to save up for such an item. Help your child calculate how many weeks of saving it will take to save up for big ticket items and help her to put aside a set amount toward the video game (or whatever big item your child desires). 
6. Use some budgeting tools.  There are some excellent books available that can help you to teach your child about budgeting. The Everything Kids' Money Book: From Saving to Spending to Investing-- Learn All About Money by Diane Mayr and The Totally Awesome Money Book for Kids by Adriane Berg both tackle the subject of money and budgeting in an easy-to-understand, kid-friendly way. In addition, consider using budgeting worksheets to help your child track his or her spending. An easy to use budgeting template can be found at the popular children's website, PBSKids.Org. 
7. Tips for Parents:
    
   Don't buy your child everything she wants. A child who is used to getting everything under the sun will have a hard time understanding the concept of budgeting.
    
   Set a good example. If your child sees you shopping compulsively or whipping out the credit cards all the time, she will get the wrong message about money. Instead, shop at sales and point out your savings to your child. Use coupons and have a family bank or money jar that you all use to save for special things like day trips. Over time, your good habits will rub off on your child and will make a lasting impression.