» Teach Your Kids How to Budget

The current economic woes also have an upside if we choose to consider it. They give us an ideal opportunity to rethink our attitudes and values, and a chance to step back from the excessive consumption that the media and finance industries have encouraged these last few years.

They also give parents the chance to involve their children in this process. It’s an excellent opportunity to help children learn good financial values. Such as by giving your kids an insight into household budgeting.

Give Your Kids a Budget to Manage

If your kids are used to spending their allowance on whatever they choose, and maybe coming to you for extra cash once it’s gone. This is a good way to build financial understanding and discipline. Here’s an example:

Identify a part of your spending that your kids will relate to such as the money you spend on treats rather than necessities from your food budget.

Now identify a number of products that are often bought and the cost of each one, having more options than you have money, so that choices have to be made. Your list might look something like this

Total weekly treats budget $10.00*

plain cookies $1.15 a packet
chocolate chip cookies $1.85 a packet
blueberry muffins $3.00  for 4
chocolate brownies $2.75 for 6
plain ice cream $4 a tub
flavored ice cream $5 a tub
popcorn $2.50 a packet
cola drink $1.25 a bottle

* I’ve made all these prices up for the example, so don’t be surprised if they bear no resemblance to reality. It’s the process that’s important here.

Discuss the task with the kids, explain that there is only enough money to buy some of the things on the list each week and ask them to help decide what should be bought.

You can cover:

how much of an item you should buy? (if you’re a family of 5, all of whom like blueberry muffins, what will happen if you only buy 4? and what about if you buy 8?)

is it better to buy larger quantities of cheaper items or small quantities of more expensive ones?

should the whole budget be spent each week, or should you sometimes put some aside to save for a more expensive treat?

how can you make sure your purchases last the whole week?

how can you make sure everyone gets their favorite choice regularly?

Should you try different brands to see if you can find lower priced products to replace those you now buy?

Once your kids are used to applying the techniques they’re learning extend this to their own allowances, encouraging them to plan in advance the things they want to buy, and work out whether they can afford them all. Get them to identify a couple of larger purchases that will need them to save something from their allowance for a few weeks. Make this a visible activity – use something to store the savings, marking it clearly with what they’re for, and a graph or bar chart to show progress.

You can also apply it to leisure activities, compare the price of going to a movie with popcorn and drinks, followed by a burger, with going to 2 movies without the extras (you can always take your own treats); or renting the movies and spending the money saved on another leisure activity.

Get your kids to understand the benefits of choosing and deferred gratification, and help them develop the skills needed to put these into practice from an early age, and they’ve a better chance of avoiding getting sucked in to credit and store card debt that they can’t manage when they’re older.

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