Penny-wise Tips to Teach Kids to Budget and Save
Teaching kids about finances is one of the many important jobs that parents have, but it’s not always easy. Our own financial situation and experience with money can cloud our thinking and leave us confused. Sometimes, we don’t feel confident in teaching since our own finances are not in good shape.
Regardless, if we don’t teach our children about money, life will - and it can be a harsh teacher. Don’t leave it to chance. The following tips can help you prepare your kids for a bright financial future.
Talk To Them
There are several subjects that parents choose not to speak to their children about- especially not on any substantial level. Often, we feel like they are just not old enough to understand or even hear it. Other times, we want to shield them from it as much as possible.
Money is one of those topics. It is such a stressful topic for many adults, especially when you are squeezing out everything you can. The last thing we want is to put that stress on our little ones. We want them to enjoy life and just be a kid. And while it would be wonderful to let that happen, there are two problems with this:
If we do not talk about money and teach them how to manage it, our kids will be ill-equipped when they move out on their own. They will not just suddenly know how to budget and pay bills because they have reached adulthood.
Like it or not, our children do face stress every day. It might be from tests at school, bullies, parents arguing, or one hundred other things, but the fact is that they do face it. Avoiding talking about stressful topics- like money- means not giving them the tools they need to cope with stress.
The bottom line is that we cannot avoid it. The good news, though, is that there are plenty of ways to talk about money and teach them how to manage it without loading them down with stress.
Set the Right Belief System
Did you know that a child’s experience and thoughts about money as a child can impact them for the rest of their lives? See if this sounds familiar:
I know someone who grew up “dirt poor,” so to speak. It was relatively normal at that time as she grew up in the wake of the Great Depression. As a result, she grew up hoarding everything from disposable cups to money.
She worked all of the time- not an exaggeration. This was my grandmother, but the most I saw of her were times I went into her job. She worked the overnight shift, so she slept all day. She was over 80 when she decided to retire due to being sick.
A few measly weeks later, she died. I loved her dearly, and I understood what drove her to work so much. Still, I would have preferred a relationship with her.
You might be thinking that this is an extreme example as it pertains to such a devastating financial time in history, and to some extent, you are right. However, it is also an excellent example of how a child’s emotional relationship with money can dictate the rest of their lives.
While we do not have total control over our financial status - if we did, we would change it - we can still help our little ones develop a good relationship with money. Before we dive into activities to try, let’s go over a few beliefs that can hurt your child’s future.
Money is not evil. Many people love to misquote that Bible verse. And though I am not going to go into a sermon here, there is a very good chance your children will hear it at some point in their lives. It is best to teach the truth early, and that is this: Money is necessary. We need it to live, to eat, to survive, to give to those in need, and to enjoy this life we have.
The trouble is when we love - or become obsessed with money. Those with such an obsession typically go to very desperate lengths to get it, which is where the evil comes in. Help your kids understand that while it is necessary and a good thing, there is more to life than money.
It’s okay to enjoy money. We are often taught that splurging is a bad thing, but that’s not completely true. When we work hard, we should be allowed to enjoy the fruits of our labor. So teach your kids it’s okay to splurge, but teach them how to prioritize so they splurge on things that will actually mean something to them.
Let Them Make Money
Experience is one of the greatest teachers, but you don’t want your child waiting until they move out to get that experience. When you are trying to teach kids to budget and save, start letting them make their own money as early as possible.
Little Kids
There are many ways to let little ones earn money. One is, of course, allowance. Give them some age-appropriate chores that are mandatory to earn it. You can also make a few additional chores available for extra money, like dusting the family room or helping clean out the garage.
We’ve also let our kids set up a lemonade stand several times at a local flea market. This alone was a lesson for them. I loaned them the money to get the ingredients, cups, and so on.
They were “in the hole” for the amount of their supplies every day they set up. Everything after that was theirs to keep. Each of them would easily make a month’s worth of allowance in just a couple of hours. It was enjoyable for them and taught them a lot.
There have been times when my kids were much younger that we could not afford to give them an allowance, though. Instead, I would pay them in Monopoly money and set up a little store in the kitchen with snacks and candy. They would “buy” whatever they wanted from the little store with the Monopoly money they earned.
No matter how little they may be or whether you have money to spare, there are many ways to get creative and teach kids to budget and save.
Teens
Once my oldest son turned 16, we got him a job. I let him take his first full check to do whatever he wanted. He splurged on himself and felt good about it. Getting to buy things he wanted kept him getting up and going back to work.
Before his next check, we got him a composition notebook to keep up with his money, his needs, and his wants. I then gave him savings “rules” to go buy and taught him how to budget. This is how we split up his check:
10 percent for giving
10 percent for short term purchases
10 percent for long term purchases
The remaining 70 percent was for his needs and whatever else he wanted
We made him responsible for his lunch on workdays, a portion of the gas to get him back and forth, and his personal needs, like body wash and socks. We continued to supply his bigger needs, but we wanted him to understand the concept of taking care of himself.
The first check he had to pay for his lunch was quite the learning experience for him. Though I had warned him otherwise, he spent his entire food budget on drive-thru food and vending machine snacks.
By the fourth workday, he was completely broke with a week left before his next check. After having to eat PB&J sandwiches every day, he decided not to make that mistake again. We sat down and worked out a list of groceries he could purchase and take to work with him. He loved buying foods he wanted to eat and still have money left for snacks, drinks, and even a fast-food meal each week.
He learned to be disciplined with his money very quickly. By his fourth check, he had met all of his goals- including buying a new PS4. His first month might have been a bit uncomfortable for him, but it taught him some valuable lessons.
Support Saving
Setting up saving rules- like those I mentioned above with my son- is a great way to teach kids to budget and save and start good habits early. You can set your own rules, of course, but requiring them to save a percentage of their money is important.
More important than setting these rules, though, is giving them a way to follow through. Have places set up for them to save, like a bank account or a savings jar. And don’t expect them to remember on their own - especially not in the beginning. You should be prepared to remind them several times until it becomes second nature.
Build Your Budget. Meet Goalry.
Setting Goals
It can be helpful to discuss their own financial goals and make that the reward for saving. For instance, if your child wants the latest Xbox or PlayStation, help them find ways to earn and save the money up. Every time they want to spend their money, remind them that it is coming out of that game system. If they still want to spend it, let them. The point here is for them to make an educated decision and live with the consequences.
When they finally reach their goal, though, and can go purchase that game system, they will feel so good about themselves. They will subconsciously equate saving with rewards, and that should stick with them no matter how old they become.
And though there is nothing wrong with contributing to the purchase, don’t just give it to them. This is not helpful when trying to teach kids to budget and save.
Instead, if the item is $200, you can say something like, “If you save $150, I’ll pay the remaining $50.” This still motivates them to save, but you get to help reward them for doing so if you want.
Give Them a Bill To Pay
When your kids are old enough to have a job, give them a bill to be responsible for. Our son was responsible for his cell phone service. It taught him to keep up with dates and make sure he had money in his account on the right day. Otherwise, his phone would be turned off, and he had no way to talk to his friends.
You could also let them be responsible for a small household bill. If they are old enough, you can let them put it in their name to help build credit references.
Teach About Credit
Learning what credit is really like is an incredibly valuable lesson. You want to teach your kids that it can be a tool, but like all tools, it needs to be used correctly.
Loan your kids some money- it doesn’t have to be much, but make it a little more than they can pay back in a week. For instance, if you normally give your kids $5 on Fridays, loan them $7 or $10. It just needs to be enough for them to actually “owe” you money for more than a couple of days.
This usually works well when you are out shopping. Your kids see something they want that exceeds their allowance - or maybe they don’t have their allowance yet - and they beg you for it. You can loan them the money and have them pay it back out of their allowance. Don’t just loan it, though. Be sure you explain the concept so that they associate it with credit later.
It also works wonders when they get their own jobs. When my son got his job, he needed a cell phone. I agreed to pay for the phone, but he would have to pay it back by a certain date, so we set it up for him to make “payments.” I explained to him that his ability to borrow money in the future would depend on his responsibility in repaying the loan.
He repaid every dime, but because money was coming out of other things he wanted, he spent more time learning to budget and spend responsibly. He did not want to experience that again, and that made it easy to explain to him about credit as an adult. I’m not saying he’ll never make another mistake - we all do - but I do believe that these lessons have taught him to act wisely.
Make Them Your Partners
When you are trying to teach kids to budget and save, don’t just talk in hypothetical situations. Show them how to budget, prioritize, and make important decisions by helping with the family budget.
Lay your bills in front of them and tell them how much money you have to work with. Have a calendar, calculator, and due dates available for reference. Let them do the math.
As they get older, try letting them take over the family budget and actually make payments. You can still be beside them every step of the way and have them okay every move with you first. You don’t have to hand them your credit card or anything. Just make them responsible for keeping up with due dates and things like that. Also, show them how to use online budgeting tools to help them stay organized.
Family Goals
Set a family goal- maybe a vacation - for your kids to work on with you. Set a budget for the goal and let your kids help you plan the vacation within that budget. Also, find ways to save money in your household budget together and encourage one another to stay on track.
Teach Them Ways to Save Money in Everyday Choices
There are so many ways to save in everyday life. It’s important that you open their eyes to these ways as you teach kids to budget and save.
Start with food. This is one of the biggest categories in American budgets, so learning ways to cut that down now helps set them up for success. Teach them how to cook, plan meals, and how to grocery shop wisely.
Additionally, teach them how to clean, sew, take care of the lawn, and similar tasks so that they do not have to pay someone else to do it. At the same time, though, teach them the value of paying for those services if it benefits other areas of life- like freeing up family time.
Go over utility bills and ways to save on those. This would be things like fixing leaks, turning off lights and appliances when not in use, keeping the thermostat at an energy-saving temperature, and so on.
We taught our children about utilities a couple of years ago. We listed some habits we would start as a family and worked together to make them happen. A couple of months later, I showed them our new electric bill - it was over $100 cheaper. Needless to say, everyone has happily stuck to those habits.
Help Them Invest
You can teach your kids the power of investing by helping them save for college. Show them how the investment grows as they do. You might also want to open a separate investment account for them to put their own money into. Seeing and experiencing this growth firsthand should spark the desire to continue later.
Debit Cards
Try getting your older children a prepaid debit or credit card. A lot of people get into trouble with these things as adults. If you let your children use them and make mistakes now, it will likely save them a lot of problems in the future.
Conclusion
These are just a few ways to teach kids to budget and save. As you work through these ideas, you will probably find many others, too.
The most important thing to remember is to have the right attitude toward them. Be encouraging and patient while they learn. Let them be free to make mistakes without any harsh judgment.