It’s difficult to imagine how your seven or ten year old could learn how to budget so early in life. Especially when he or she is still coming into the house covered in mud or glitter and you still have to beg for them to brush their teeth. But it is absolutely possible and actually not that difficult.
Leading by example is a way to start teaching your kids how to budget
As the oldest of 5, I was very close to the decision making process, the planning and what the family needed to buy or save for.
My father constantly traveled for work and sometimes spent a whole month out of the country while my mom all-by-herself took care of the house. When he traveled she would be the one handling the budget. Financially, it was a great thing for the family when she was in charge of the money.
She was a stay at home mom who never quite finished school and she had a very poor childhood (financially, of course). Every Cruzeiro she made was carefully saved (no pennies because this was in Brazil). So as a child she learned the value of keeping track of her money.
Because of her budget skills, she was able to make the money last the whole time my father was out of the country. She would even save enough money to buy us each an outfit so we could dress up to pick up our father at the airport when he returned. Happy times!
Be very careful with your own budget or the kids may learn some bad habits too
In contrast, I learned at an early age that my father was not good as good as my mother with his budget. During his career he was always a hard working man but he also spent too quickly. That habit came from his own father. I learned and still remember the adults saying that grandpa just got paid. He then would spend his entire budget with presents for the kids on the day he got the pay check.
While it was nice to get presents I never understood how grandpa could pay for his food or rent. I know, I was an inquisitive kid, thinking about that even back then.
Nowadays, many parents want to shield their kids from the world so they can enjoy a few more years with fairies and superheroes and not so much of the “real life”.
I know it is commendable to give your kids a childhood but it is also important that they learn to budget early on. If you do so they will have a reasonable understanding of why you are not buying that toy or video game today. Who here doesn’t remember throwing tantrums in the supermarket?
A Kid’s budget lesson should start with an allowance and some chores that can they turn into cash
I don’t know about you but when my father asked us to mow the lawn or wash the car we just ran for the hills. Until he made a list of chores that we could turn into cash. That was one good thing we learned from dad: you work-you get paid!
For us kids, it was like finding a gold mine. If we wanted that video game, we could finally buy it (remember Atari cartridges? Cough, cough! Sorry, a lot of dust flying here!). Or we could buy the next hot toy out there.
I know you are going to say that “kids should be doing their chores regardless”. Yes! I agree. For the most part.
I also think that since kids are not legally allowed to work for an actual paycheck until a certain age (at least in the US) giving them a list of “for hire” chores can teach them the value of work in exchange for money.
They can learn that by working they are able to buy that game.Or that doll or even that dog they always dreamed about (before you buy a dog please read my article about gifting a pet). They will also see that they need to work first in order to get that money, and that it is not “easy” making money.
Learning the value of money is the first step for kids to learn how to budget
If kids learn that there is an “exchange” in order to get that money, i.e. you dedicate an hour or two to mow the lawn and you’ll get money in the end, they will quickly learn that the time spent working (mowing the lawn, washing the car) has value.
The first value they will learn is that “time is money”. The second value they will learn is that it takes a combination of several “hours” (“time”) to get the total amount of money they are looking for.
For example, if you pay $5 for your 10 year old to wash the car, he will see that it took 1 hour or so to make that amount of money. Just like us when we are adults we get our first check and realize we worked 40 hours to make, say $300 a week or $1000 a week.
And let’s say your kid wants a game that costs $25 dollars. You should explain that if he is looking to get that game he will need to wash that car at least 4 more times to be able to buy it. Or find another chore on the “for hire” list to make more money.
When they realize the value of their work, the “budget talk” should come next
When your child realizes that it will take a little longer to get enough to buy that game or doll you are probably going to get one of two responses: “Can I just wash the car everyday so I can get this money quickly?” Or ,“This sucks! I don’t want to do this anymore”.
When you get the “can this be faster” response, this is a great opportunity. Clearly explain that saving money takes time and effort but with patience he or she will get what they are saving for. Ask them to imagine the day they are finally going to the store to buy what they want.
If you get the “this sucks!” response, ask your child why, and have her explain to you why. I bet you, their issue will be how long it takes to get enough money to get what she wants.
In this case, she will need a “small victory” to get the “taste” of getting what she wants to buy in exchange for work. You have to be careful because this is where kids can also feel “entitled” after you “give” them that small victory.
Here’s what you are going to do instead: You are NOT going to make this easy.
Sure, they need to experience that “thrill” of making enough to get what they want at least once. And maybe only once.
But you need to make the chore a little more “difficult” to complete and make it clear that it is a one time deal. That if they want to get something else they have to go back to the “old system”.
For example, if your kid wants that video game/or that more expensive doll have him/her agree to a “set of chores” before they get their money. Combine a lot of things you want them to do into this one time deal.
DO NOT give them chores that they are supposed to be doing already like cleaning their room or gathering their toys or picking up after themselves.
You could offer a prize here and there for doing those chores but NEVER make that part of the “for hire” chores. Maybe every 2 months they get free ice cream or something they value but that it’s not too expensive.
The chore should be something unusual like mowing the lawn (not for a 7 year old of course!) or sweeping the yard. It can also be something you are working on yourself but could use the extra help like sorting papers to shred, or organizing the garage.
The point is that after they complete ALL the tasks you gave them, they get that one big “payday”.
When they finally experience the first purchase with their hard earned cash, in most cases, they are “hooked”.
Yes, be prepared for them to ask you for more “for-hire” chores, and your own budget may not allow you to offer those a lot. But even if you start with a dime here or a quarter there, they will get the picture. And start early on in their lives. Start with a candy purchase with that quarter. Or a small toy with that dollar.
Show them how to stretch that budget too and the value of bargain hunting
One way to monitor your “little workers” is to make a grid or checklist for each child. Have them create their own goal list too. Something like this for example (click on the image for a downloadable form like this one):
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When you see that your child is getting close to getting the amount they need to reach their goal, take them “window shopping” for the item they want. Online shopping also counts.
Teach them to compare prices. Show them how to stretch their money by showing them that they can buy something similar for less. Or that you can find their particular item at a more discounted rate. Show them how to wait for sales if you know a “season” like Black Friday is coming up.
This lesson will trigger their “bargain hunting” skills.
They will see that their money can go much further if they take the time to find the right price.
Let’s say your kid wanted a video game. After “bargain hunting” you both find out there is a deal for the original game he wanted. You also find out there’s an expansion for that same game for the same price or for a “hair” more.
Make them excited for that possibility. Give them the opportunity to learn to wait so they can gather that little extra cash to get that extension. Who doesn’t like a bargain?
Of course, to show your kids how to budget you should also know how to do your own budget. I wrote two articles called How to Create and Maintain a Budget Without Starving. I also wrote about How to Balance Your Budget Like a Pro. These articles are a good way to start your own budget if you are not sure how.
Learning How to Budget Early will help them avoid a lifetime of Debt
Teach your kids how to budget early on. When they reach college age they will know how to handle their own finances. A lot of us have huge student loan debts. This is partly because we were unprepared to budget college living expenses.
Even more critical is knowing how to use a credit card at an early age. A lot of college kids nowadays don’t know how to use credit cards. All they see is that they can swipe their card in a machine and they can buy “whatever” they want. It is “easy money” until the bill shows up in the mail box and panic sets in.
Set up a time with each child. Choose a favorite “piggy bank” or box as their “savings” account. You can choose to let them keep control of the “bank”. Or teach them the value of banking once they understand how a budget works. You could offer to be the “bank” so they are not tempted to spend the money earlier if they prefer.
Either way, your child will be more prepared for a lifetime of good financial decisions.
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Until next time!