Budgeting is a skill that is best learned as early as possible so that children learn good money habits. Teaching your kids how to budget is one of the best things you can do to set them up for a financially secure future. Whatever age your kids are, there’s loads of things you can do now to start teaching them the importance of budgeting and why they should budget.
We’re not saying you have to be specific with the numbers. However, explain to your children about where your income comes from – you go to work to get paid a salary. This teaches them early on that money should be earned. You can then explain that the money you earn is used to pay the bills such as rent, food, electric and water. Children should understand that these are the things which need to be paid as they are all things you need to live. You could tell your kids the percentage of your income which go towards these essential costs.
You should then explain that after paying for the essentials, you can then think about spending money on the treats such as days out and takeaways. Make sure your child understands that such treats are only brought after you’ve paid the bills.
If you save money each month, tell your child the percentage of your income that you save and what you’re saving for. You can talk about how long it’ll take to reach your goal and what will happen when you do. Teaching your kids about saving ensures they realise they can’t have what they want without the discipline of saving for it.
These discussions will help your kids learn the 50/30/20 rule of budgeting as well as learning from your example.
We’ve mentioned this above but it’s really important for children to understand the difference between needs and wants from a young age. You can reinforce this when you go shopping by saying things like, “We need some milk for your breakfast” and “Would you like a treat for after your dinner?”
You could also ask your child to make a list of things you need when you go shopping. Then ask them to add something they would like if there is enough money left. It might help to give them cash so that they can pay for the shopping and then explain that they can buy a small treat from the change. This helps to reinforce that they should pay for what they need before buying the things they want.
It’s something we’ve all heard as kids or said as a parent; “You need to learn the value of money!” So don’t just say it: teach your kids the value of money by:
You may decide to give your child pocket money and this is great tool in helping them to budget. Asking them to do chores around the house can help to enforce the link between working and earning money. However, you may not want to encourage the message that they only help out because they are been paid to!
Talk to your child about what their pocket money should be used for and encourage them to save a percentage of it. When they ask you for things, remind them that they can use their pocket money. For bigger items, saving for it will help them to realise that they can’t have everything they want immediately. It can also help hone their maths – ask them how long it will take them to save that amount of money.
As we’ve mentioned above, learning to save from an early age helps to set kids up for a healthy financial future. Encourage kids to save a percentage of their pocket, birthday money or Christmas money and to set saving goals.
Money these days is often digital. Making budgeting visual, especially for younger children, can help them grasp the concepts of budgeting much easier. A simple tip is to get some clear jars and label them “spend” and “save”. When they get their pocket money, they can put some in each jar and it helps them to see what they are able to spend and how much money they have saved. Seeing the “spend” jar empty may well fast track their budgeting skills!
If there’s nothing in particular they want to save towards, explain when the jar is full they can transfer it to a bank account and earn interest on it. Though kids will think this boring, they’ll thank you in years to come!
Make your kids aware that when their “spend” jar is empty, they’ll need to wait until they next get pocket money to be able to buy anything – dipping into savings isn’t allowed!
When we talked about Budgeting Myths, we explained that an effective budget needs to be written down. Encourage your child to keep track of their spending by writing it down. It will develop their budgeting skills if they get into this habit early on and can visually see where their money has gone!
In learning about money, it’s really important that kids understand the concept of debt. Talk to them about credit cards and loans, when they can be beneficial but also the consequences of not repaying debt. You could talk to them about your own credit card, what you use it for and the importance of paying it off in full each month. It might also help to explain how this helps in maintaining a strong credit score, though you can keep this simple and brief for now.
If your kids are older and heading off to university, in the not-too-distant future, it really is worth making sure they understand debt and the consequences of not paying it off.
You can help kids develop their budgeting skills by putting them in charge of planning a family day out. They will have to research the options, calculate all the costs involved including travel costs and food, work out which option is best value for money and then save as a family for the day out. This helps put all of our budgeting tips above into practice so that kids start learning how to budget and become money-savvy as early as possible..
If your kids are slightly older, check out our Money and Budgeting for Teenagers page.