Teaching children how to budget at a young age will be helpful for them later in life. When your child gets money as an allowance or as a gift, you can help get them started with simple budgeting concepts.
Start With Goals, Wants And Needs
Talk with your child about money and how to use it wisely. Talk about their goals for their money. What do they want? What do they need? There may be short-term goals they can be purchased right away. They may have long-term goals that will require them to save over time. It is helpful for children to have a reminder of why they are saving and why they should not spend all of their money now.
Save, Share and Spend Method
“Save, Share and Spend” is a method for children where they set aside money toward each of these three things.
When your child earns money, they should first set aside a portion for savings. The recommendation is to save at least 10% of earnings. This percentage can be increased for children because they have fewer expenses. Savings can be accumulated in many ways. Some use a jar, piggybank or even a joint bank account to gain interest. The savings account should be kept for emergencies (new bike tire) as well as longer-term goals (first car).
Teaching children about charity at a young age is also useful. Allow them to research and contribute to a charity of their choice. Sharing is typically around 10%. Discuss options with your child to determine which cause they may enjoy helping. Also consider having them volunteer with that organization to see what they are actually helping. For example, it can be very rewarding for children to use money to purchase toys for a local outreach center. Then they can help pass out those items out to needy families at Christmas.
The remainder of their earnings can go toward spending. The spending category is available so your child can make purchases they choose, but remind them that additional savings will help them reach their long-term goals faster.
Start Small, And Set An Example
It is helpful for your children to see how you budget, but start small. For example, allow them to help you plan the weekly grocery shopping. Start by planning a list from sale flyers and coupons, and then stick to that list at the store. This can turn into a saving game for them. Remember, children will learn from your example. So telling them about budgeting is important, but it’s much more impactful if they see you following a budget yourself.