When you were little, you probably tuned out your parents any time you started hearing them talk about money. It was never a fun conversation. In fact, it’s possible that you sensed your parents’ stress and annoyance once they got on the subject.
Money is stressful. As an adult, money is something you worry about constantly. Once you start having kids, your finances can be even more of a chore to figure out.
Even if you’re a good budgeter, you can’t necessarily expect your children to understand why to budget or how to do it. They probably don’t even care. And, there’s a good chance that you’ll only annoy them if you endlessly talk about what products are the cheapest.
That’s why it’s your duty to raise little budgeters that enjoy keeping tabs on their money (yes, it’s possible!). It’s all in the way you approach the issue that can make or break your success in the budget-teaching department.
Step #1: Start Teaching Personal Finance at an Early Age
Waiting until children are old enough to understand the concept of money to start teaching them about saving and budgeting is a flawed thought process.
It makes sense on the surface. But, do you think an 8-year-old who has never been taught the concept of money until she starts learning how to make change in 2nd grade will suddenly have an interest in it because you want her to?
It makes the most sense to create a strong foundation by teaching money concepts that kids of all ages can understand.
For example, a toddler is old enough to start learning numbers, feel real money and to pretend to pay for items she buys when you play “store” with her.
A preschooler who can count to 10 can start understanding that things cost money. You can point out price tags at the grocery store while you shop with him.
If he asks for a toy, be sure to point out the numbers on the tag so that he can see its cost. Dig a little deeper during pretend play by giving him a set amount of money to “buy” items with and help him understand that he can get more with less money when he pays attention to numbers.
When my daughter was about three years old, I started a fake currency system with her. I printed off “dollars” I made on my computer and let her have one when she’d lose a tooth, do a good deed, help me with chores, or had an excellent day at preschool.
She could turn in her “dollars” to me when she had enough saved for something she really wanted.
She wasn’t quite old enough to be responsible with real money, so I saw this as a good alternative. It worked to teach her the concept of money, and it worked quickly. She started to understand that she needed to have enough saved to purchase a toy.
If not, she couldn’t have it. When she saw her hard-earned money disappear when she bought a new toy, she started to think twice about how much she had to have it!
My daughter is almost a teenager now and she’s still the same way. I can’t remember the last time she used her money because she refuses to use it unless she wants something she feels is important enough.
I instilled in her some awesome money-saving and budgeting concepts when she was younger that helped mold her into the money-conscious young adult she is today.
Don’t think that, just because your kid can’t yet count, he can’t possibly understand money. He can, and the earlier you start introducing him to money concepts, the easier – and less stressful – the process will be on both of you in the future.
Step #2: Be Honest About Your Finances
Once kids start to get a little older, it’s time to delve deeper into the “whys” of saving and budgeting.
Will kids actively want to budget if they don’t understand what its importance is? Probably not.
Little eyes need to see that Mom and Dad have a very real reason for budgeting and they’ll only understand that need if you give them some real-life examples. That means that you’ll need to share a bit about your finances to bring them into your world.
I’ve always been a budgeter. I make a budget for grocery shopping each month with a plan that outlines every single day of meals for that month and the ingredients I need to buy.
Then I split my shopping list into different stores, placing each item on the store list where I can buy it the cheapest. Would this be weird to outsiders? Sure. Is it weird to my kids? Not at all.
In fact, they help me plan my list and get excited to help me find some budget-friendly meals using ingredients we already have. They find it fun to participate by adding new meals to the list and helping me figure out what ingredients I do and don’t have to buy.
From the time my two kiddos were young, I’ve made it clear that money doesn’t grow on trees and that I work very hard to have everything we have.
I don’t shove this information down their throats. Instead, I make the importance of budgeting clear through our lifestyle and by making it relatable.
School-age children are old enough to understand that, for their families to have more money for fun activities, hobbies, and sports, they have to cut back in other areas.
It’s perfectly okay for parents to share facts about their own finances to help drive this point home. You only need to share as much as you’re comfortable with and how much your kids can understand.
Show younger children how to clip coupons out of newspaper inserts or how to print them off a website. Explain that, by using coupons when you shop, you can get more things for the same amount of money.
They’ll think it’s fascinating that these little pieces of paper hold so much power.
Digging yourself out of credit card debt? This is a good time to teach youngsters what credit cards are and how to use them responsibly. Show your child a credit card statement and explain what a credit card limit, balance, minimum payment, and interest means.
One of the best things you can do as a parent is to be open about the financial mistakes you’ve made along the way. Perhaps you used to splurge on unnecessary snack foods, adding an extra $50 to your grocery bill each trip.
Or, you financed a car with a higher monthly payment than you wanted to pay, resulting in about $1,000 more out of your pocket every year. Real-life examples can be the best way to help your child avoid making the same financial blunders in the future.
Step #3: Help Them Understand How the Present Affects the Future
You’ve explained why budgeting is important for the here and now and you’ve given your child a taste of your personal finances. Great! But, budgeting is also an important step for your future finances. Your child needs to know how budgeting and saving now can affect his future.
One of the best ways to introduce this concept is to teach children about investing. The simplest form of investing is probably a savings account, so it’s a good idea to start there.
Capital One 360 offers easy-to-use online savings accounts for kids that accrue interest. Sit down with your child while you sign up for the account, explaining that this account is one that you put money in now so that she’ll have it available in the future.
You’ll likely get bombarded with several questions, but that’s a good thing. The most important question to address is why it’s important to tuck away money now for something she won’t need for years to come.
You can explain that college, for example, is a large expense. This money lets you save for that expense little by little, in a way that doesn’t affect your finances now.
Get her involved in the process as you go, too. You can show her, using a math problem or graph, for example, how much investing just $1 of her weekly allowance into her savings account can affect her savings by the time she’s 18.
That’s $52 per year of just principle savings without figuring interest! For a little kid, that’s a lot of money that can get her excited about saving for her future.
If you don’t mind sharing more of your financial profile with your older children, you can break out your savings account or retirement plan records. Show them what you started with and how much you have now.
Seeing the growth first-hand is often enough to light a little spark in children who already have a good understanding of money.
Step #4: Give Them Budgets with Some Freedom
Most kids won’t mind budgeting if they’re still given a bit of freedom to work within their budget. For example, I give my children a budget to stay within for their birthday gifts. They can pick out what they want within that budget, adding up prices as they go.
They start to get a feel for how expensive toys and games are – and learn whether they really want them that badly – and they learn to appreciate the amount I spend on them for special occasions.
Most importantly, they learn how important it is to work within a budget. Here’s what you have: stay there. It sounds a lot like being an adult. That’s because it is, and it’s an imperative step toward becoming an excellent budgeter in the future.
The beauty of it, though, is that your kids likely won’t even flinch about having a budget because they’ll find things they want within that budget. Seriously – try it. Even if your child has a case of the “gimme, gimme’s,” he won’t mind this budget because he still has freedom in choosing his gifts. You’re giving him a big responsibility, yet leaving it open enough for him to not even notice that he’s being responsible.
Step #5: Make Budgeting Entertaining
Children learn best when they’re having fun. If you want your children to treat budgeting like a helpful, important task instead of a lame thing that Mom does, you’ll need to make it entertaining.
This is easiest for younger children, most likely. Toddlers and preschoolers typically love make-believe activities that involve shopping for groceries, clothing, toys, and more.
When I was preschool and elementary-aged, I had so much fun creating “businesses” for different things and having my mom “shop” for my goodies.
Through this simple activity, I was learning all kinds of things, like the basics of running a business, pricing items, how to treat customers, and earning a profit.
I didn’t realize it then, of course. I was just having fun. But, those concepts stuck with me. I played that same activity with both of my children, who found it just as fun.
My daughter continued to create more elaborate “businesses” until she was about ten years old, building upon her basic knowledge of finances to lead to more advanced concepts.
She’d sit for hours sometimes, creating a budget for her business that would help her understand how much she could spend on items to price them fairly for customers and still earn a profit.
It was so fun for her that she did it on her own without any prompting from me. That’s the key, here. If your kids have fun working with money, they won’t likely start seeing it as something that’s stressful or a nuisance.
They’ll learn to work with what they have in a way that makes sense for them. Once kids get a little older, it may take some more creativity to continue making budgeting and saving fun for them.
They may begin to see money as something that can buy them what they want instead of remembering that it also purchases things they need. Still, you can reinforce the importance of money by giving them a bit of fun responsibility.
Older kids can help with a yard sale, for example. Let her sell some of the things she no longer uses so that she can save for something she wants.
Allow her to negotiate with customers so that she can put a value on her belongings. She’ll feel responsible while having fun earning money, and she’ll get to spend it how she chooses.
Step #6: Create a Reward System Involving Real Money
Don’t we all do better at our jobs when we have some type of reward to look forward to?
Kids will do the same. Even after they learn to like budgeting and saving money, they can – and should – be incentivized with a reward.
The good thing about rewarding kids for their excellent financial habits is that there are so many ways to involve more financial concepts in their rewards!
For example, take your son’s allowance to another level as he gets old enough to understand how interest works with money you save. Most kids can start understanding the basics around 3rd or 4th grade.
Is he starting to save his allowance up for things he really wants instead of blowing it as soon as he gets it? Reward him for choosing to use his money wisely by offering some “interest” at the end of the month.
It could be something simple like giving him an extra $1 if he saved all of his allowance for the month. Or, maybe $0.50 for every $10 he still has in his piggy bank at the end of the month.
You can give monetary rewards for special things that go above and beyond your expectations for your child, too, like her decision to stay after school to volunteer with a fundraiser.
Talk to your child about her good deed and have her negotiate a fair “bonus” for it. This both helps her start understanding the value of a dollar and rewards her for doing something beneficial and out of the ordinary.
Final Thoughts: Turning Little Ones into Budgeters
Strict budgeting that turns parents into order-barking nightmares is sure to cause a family financial fiasco. Budgeting is something that can be beneficial for the whole family if it’s taught correctly.
The key is to begin fostering the basic concepts of saving money at an early age so that they grow with your children, creating money-conscious kiddos who are more willing to save than to spend.
Share your financial profile with your children. Lead a budget-friendly lifestyle that’s fun and nurturing. Let your kids get involved in budgeting activities that coincide with their age and education level.
Before you know it, you’ll have a savvy little budgeter on your hands who views saving money as an important tool for his – and his family’s – future.