Video: How To Teach Kids to Budget: Important Life Skills
Money management is an important skill we all need to learn. To give them a head start in the world you can, and should teach kids to budget now! Teaching them at an early age is extremely beneficial.
Because unfortunately, many of us don’t figure it out until we face adulthood. Which at that point is sometimes too late. We have already drowned ourselves in debt.
So, why is it important to teach your kids to budget?
It is important to understand that our children are growing up in a time where they have an immediate gratification for everything. And we know you can’t always have exactly what you want when you want it.
The idea of budgeting for an item is a great habit to learn at an early age because you’re grooming them for the future.
In this VIDEO Interview, Mom’s Life Hacks founder, April Iannazzone and author Allyson Ward have a conversation about the importance of teaching your children to budget from an early age
When is the right time to start budgeting?
You often hear parents say, “But they are too young for that sort of a thing.” But the truth of the matter is, that’s exactly the right time to start with the topics of money management, budgeting, and to teach kids to budget.
I’ve been asked some questions about this topic, so keep reading to find out my answers and reasons why it’s important to teach kids to budget.
An allowance is a great tool to use when you starting to teach kids how to budget. My kids and I started budgeting when they were 5 and 7. What I did was give them ten dollars a week. I did not demand for anything in return. I just wanted them to have their own money, so they could start making their own decisions.
Did they want to spend the money on buying something? Or did they have a school related activity they had to spend money on?
It was all up to them. But, they had to do 3 things:
- First, they had to put 70% of the allowance ($7) in their wallet. They could spend it however they wanted.
- Second, they had to save 20% ($2) of the money. It was meant to save up for a bigger ticket item.
I wanted to get them in the habit of doing that early on because sometimes you do get windfalls. For example, a tax return that you can stick right into your savings. You don’t need that for your expenses.
- Finally, the remaining 10% ($1) would go into another envelope that said, ‘Contribution.’
That way, whether it was at a church activity or some other charity giving opportunity, they would have the pride of knowing that it was their money and they got to make a contribution.
Is knowing how to teach kids to budget different with teenagers?
Yes, how to teach kids to budget is different for older children. The percentages can vary with teenagers. You can ask them to put much more towards savings.
For instance, teens like to go out with a friend and they ask for $25 to go to the movies. But then at the same time they also want to buy the newest iPhone.
So they have to think, “Okay- I could spend $25 now or I can save for that $700 item. What do I want to do?”
It’s hard to make that decision even if they’ve been budgeting their whole childhood. It’s still hard for them to give up that friend for the bigger price! But it’s a great lesson to learn.
One day my daughter asked me:
“Mom! Are we going to the store to get a Halloween costume?”
I said, “Whoa! How about one of those costumes you have upstairs. Why don’t we use one of those?”
“Oh no! I don’t want to wear them.”
“Okay! I know costumes cost about $40. So here’s what we will do. I’ll pay for half of it and you can pay for the other half.”
She thought about it and said, “Oh no! I think I will wear one of those costumes I already have.”
The point is, it gives them the sense that money is real. It’s not just something mom pulls out of her wallet, dad pulls out of his wallet or grandma buys it. There’s a cost.
They need to understand that they have a part in paying for the cost. That will be sure to get them thinking about it, which will lead them to probably make a different decision.
Talk About Money
On the other hand, many parents have to contend with newborn ages all the way up to teenagers. How early is too early to teach your kids to budget?
What can you do, at any age, to teach kids budget?
The most important thing to do is to talk about money with your kids. A lot of people don’t do that. They take on the burden of never discussing it with their kids. But then their kids don’t really have a sense of things costing money.
My daughter once remarked, “Wait a minute! You mean you go to work every day because they pay you.”
If they don’t pay I don’t go, right?!
Even at a very basic level I thought that was a concept she understood. But clearly she didn’t. We can’t assume our kids understand that. We want them to feel comfortable about money. It should be a topic they feel comfortable discussing.
A great time to discuss money, regardless of the age, and how to teach kids to budget, is when you’re planning a trip. If you have a family trip coming up, you want to sit down and say, “We’re going to New York City for a break. We’re going to sit down and map out how much money it costs to go.”
They may or may not have to make a contribution but they need to see the overall expense. They should know we could drive, take the train or fly.
I’ll show them the cost associated with each of those. If we drive, which is less comfortable than taking a plane and not as fast, we’ll have more money to spend on shows, going to a baseball game or buying souvenirs.
When they understand there’s an opportunity cost, it really starts to become real for them.
Sense of Ownership
Similarly, another way to teach kids to budget is something my mom called ‘sleepy time savings’. If we went to bed on time we’d get a quarter every night for a couple months leading up to Christmas. Then we used that money to buy our family presents.
The sense of pride in having my own money to buy the presents was big because I had bought that gift for my family. I saved that money. I went to bed on time every night for so many nights to get all those quarters to now have enough money to spend.
It’s that pride of ownership that was a huge gift. You can absolutely tie that to money especially with getting your kids to go to sleep on time.
It’s something I still continue with my kids.
Children of all ages, especially teens, need to have a sense of self- esteem. The only way you can teach self-esteem is by making them earn it. You can’t give away self-esteem.
For example, here is another great way to teach kids to budget.
Some parents have a problem with allowing their kids to drive. Should you buy your kids a car?
I did buy mine a car. Because the trick that matters is, it removed the burden of getting them to and from activities.
I’m a big planner. Four or five years before my oldest daughter was able to drive, I had a need for my babysitter to have a car. I bought a car that my daughter would be able to drive when she was able to.
The other reason I bought them a car was because I wanted them to feel independent. It also gives them the responsibility of making payments every month on the car so that they can earn the privilege of driving that car.
But, every house has different rules; different ways to tweak it.
One of the important reasons I bought a car is because I tied different things to the deal.
I was able to set a few rules. I told them “if you don’t have your car I’m not driving you to practice. You’ll have to figure out how to get a ride because I gave you an opportunity to solve the problem. I solved the problem essentially for you. I think now you’re going to have to solve it yourself.”
This way, succeeded in enabling them to contribute more.
There are many other tips on what parents can do to help their kids start budgeting.
‘Coins’ of Screen Time
I have a friend with children who are about 9 and 12. One thing she’s very concerned about is how much screen time they have.
I was an early adopter to TiVo. I said, “Okay! Here’s what you can watch.” I chose what I thought was appropriate and then they could pick whatever they wanted from what was on the TiVo.
But then came iPhone and all sorts of gadgets. Now the kids are spending more time on that. Kids also have Kindles and video games. It could really add up if you’re not being very conscientious about it. Consequently being a more difficult way to teach kids to budget.
The idea that we came up with?
The kids would get five coins each week. With these coins, they could turn in each for 30 minutes of screen time.
Whether it’s TV, a video game, or whatever it was they wanted to do. If they ran out of screen time, then that was it.
They could earn more if they studied for an extra 30 minutes. Then they could get another coin to add to their TV time or whatever screen they may choose.
Although it took a little time to get it setup and organized, but once we started doing it, it kind of managed itself.
And the kids were honest about it too. It wasn’t like they would hide their coins from the babysitter so that they would get their TV time.
The idea worked well with kids ages 6 to 10. If you start this at a younger age you have more control.
However, this changes when they have a cell phone.
The truth of the matter is, it’s become more pervasive. There are so many things that you can do with a smartphone. Kids would study with it so it’s hard to completely ban it. Do you see how this way to teach your kids to budget is more challenging?
Cell Phone Charging Station
But there are ways to control cell phone usage.
For example, I was with a client recently where I was doing ‘home turn around’. The rule that we came up with was that it’s the father’s responsibility to control the laptop, cell phone, iPad, etc.
He set up a charging station. Every night at whatever time they agreed upon, 10 o’clock or 11 o’clock, it all goes to shut down whether you finished your homework or not.
It also ensured that kids get their sleep.
Sometimes teenagers will come up with various excuses. They’ll say, “Oh, it’s off! I’m just going to use it for my alarm clock.” But then they’d switch it on and you can’t help it. They get addicted. You have to go check it out.
Coming back to the ‘coins’ idea, and using it for how to teach kids to budget – not so much with their money, but with their time.
Budgeting is not all about money. It’s important that you learn how to teach kids to budget. So we can give them resources that are essential and will affect every aspect of our child’s life.
They should know how to budget their resources. It’s a concept that’ll help them in many areas.
A little more about Allyson Ward and the transciption of the video interview:
April: I know that you help parents in different areas, can you tell us how our viewers can get in touch with you and how they can find out about you?
Allyson: Absolutely! The book I wrote, that was released last year, is available on Amazon.
It has a funny title. Please Don’t Come Home (Except For A Visit): A Field Guide to Creating Independent Adults.
People who know me are aware of the fact that I love my kids, and I value the time I spend with them.
It’s not that I don’t want people to come home. It’s a field guide for adults. I don’t want them to come home because they can’t do for themselves, right?
April: Anybody with older children can understand that. Those people with little kids would say, “Oh! She’s so mean.”
Allyson: I wrote the book because there were so many people coming to me saying, “I need help with this.”
Go to my website which is: pleasedontcomehome.com
Even if you’re someone with little kids, there’s an assessment that I have which is going to talk about how independent your children are. It’s more appropriate for teens. But even if you have little children, it’ll give you an idea about what things you need to do.
Take the assessment on Allyson’s site (pleasedontcomehome.com)
And after you answer the questions, you’ll get a score – green, yellow or red – and there is a video with your score that tells you the results.
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