How to Help Your Children Build Their First Budget

Explaining Money and Costs

Establish an allowance. If you want children to budget, you need to give them some money to work with. Establish an allowance for each child. Many parents decide to give their child one dollar for every year they've been alive. For example, your five year-old would earn $5 a week. However, there are no strict rules. You could agree on a set amount for all your children, like giving all your kids $10 each week. Make sure you set rules regarding allowance. Let your kids know when they can expect to receive their money each week. You can also make kids earn their allowance by doing chores.

Talk about essential spending. If you want your children to figure out how to budget, let them know what essential spending is. Say something like, "The first step to forming a budget is identifying where you need to spend money. This is stuff like bills and groceries." From there, you can help your child decide what their essential expenses are. You can use your own budget as an example, as children are unlikely to have many essential expenses. Explain to them how much money you personally must set aside each week for things like food and bills. From there, you can ask your child where they need to spend money. Ask them something like, "Is there anything you need every week?" Maybe your child always spends a dollar on a drink during lunch. Have your child subtract one dollar from their allowance.

Show them how much items they want cost. As children decide how to spend their allowance, talk to them about cost. Ask about the kinds of items they're hoping to buy and let them know the exact price. For example, if your child wants to buy a set of toy cars, say something like, "Those are $5. That's about half your allowance." Do this each time you're out and your child sees something. Over time, they will learn to remember their personal budget before buying an item. For example, your child may want to buy a toy at the store, but realize they will not have the money for a drink at lunch the next day.

Help them be creative with budgeting. Children may be frustrated at first with budgeting. They may want to be able to spend money more freely and get frustrated when money runs out. Teach them how to be creative and get by on less. Teach your child how to make do with what they have. For example, your child wants to do a specific craft project that calls for markers and poster board. You have markers, but no poster board, and your child agreed to only spend $5 each week on craft supplies. Tell your child they could substitute poster board for cardboard and save their money. This will save some of their craft budget for more unusual supplies that would be hard to find a substitute for.

Identifying When and Where to Spend

Encourage your child to be content with what they have. Children may be eager to spend money, especially if you've just started giving them an allowance. In order to teach them to budget and save, try to teach contentment. When your child wants to spend money at the store, remind them to be grateful for what they have now. Encourage your children to strive for more in ways that don't involve spending more. For example, your child wants a new hockey stick. Tell them something like, "You would enjoy hockey more if you practiced with your friends more often. Why don't you try to use your current hockey stick now and see if you enjoy playing more?" Ask your children whether they really need items they want. Explain to them that ads work to create a sense of want. For example, say something like, "I know those kids on the commercial are having fun, but they're paid to act like that. You could have a lot of fun with the toys you have now."

Teach about need versus want. When young children are trying to budget, they may struggle to know the difference between needing something and wanting it. You should step in and help your child understand the difference between need and want so they can learn to budget effectively. Remind your child every dollar they spend on one thing is one dollar less from their weekly budget. For example, "If you spend $2 on that candy bar, you will only have $8 left of your allowance this week. Do you really need that candy bar when we have treats at home?" When you're in the store, have your child spend some of their own money on supplies for school. This can help teach them to budget for money they need. For example, you can have your child pay for their own pencils or pens.

Remind them of their budget regularly. Throughout the day when spending opportunities arise, remind your child of their budget. This will help cut back on impulse purchases. For example, if your child wants to buy a stick of gum, ask them, "How much of your food budget is left? That gum costs a dollar fifty."

Set an example yourself. Children look to their parents as models. Each time your'e shopping with your kid, show you're adept at budgeting. Say "No" to impulse purchases and make a list when you're shopping. If something is not a good deal, say so. For example, "We could get this name brand cereal, but this one is much cheaper and has the same ingredients. This will help us save on our food budget."

Encouraging Savings

Have your child save up for something they want. A good project to help with saving is having your child save for something they really want. This will help them learn to save for longterm goals down the road. Help your child identify something they want, such as a new toy or something like horseback riding lessons. Sit down with your child and look over the costs. Help them figure out how much money to set aside each week to eventually afford the item. For example, say your child wants a remote control car that's around $30. They have $10 a week for an allowance. Explain to your child that they can afford their toy in about six weeks if they put aside $5 each week.

Provide incentives to save. Children often need a nudge in the right direction as they tend to go for immediate rewards. You can do something that motivates them to save. For example, offer to give them 50 cents for every dollar they save.

Take them to a bank. Many banks have workers who are willing to talk to young children about solid savings habits. Call your local bank and see if anyone would be willing to sit down with your kids and talk over practical savings. If your child has a large chunk of money they received, like $100 from a birthday card, you can even talk about opening a savings account. A savings account can be a good way to teach children about things like interest.

Make saved money visible. Many children are visual learners. If you want you child to learn to save, put their savings somewhere where they can see it. Invest in something like a clear piggy bank or a big glass jar. One way to teach savings is to have your children pocket their spare change. Each time they get a quarter or nickel back, have them put the money in a jar. After a few months, take them to the bank to turn in their change for money.