While parents say they would rather talk to their kids about finances than sex, only 28% are doing so. That’s what BECU found in its 2019 Finance and Parents Survey of 1,000 adults. The survey also revealed that 82% of parents cite fear as a barrier to talking about finances with kids.
If you don’t teach your kids money management, though, chances are no one will. Only 21 of the 50 states require high schoolers to take a personal finance course to graduate, according to the Council for Economic Education. Helping your kids gain basic skills like budgeting and proactively managing their money can begin early. You can start teaching your kids how to budget by simply opening the lines of communication and providing some simple guidance. Here’s how.
Teaching Primary School Children How to Budget
1. Model Good Money Management
- Lead by Example: The most effective way to teach your kids about budgeting is by showing them how you manage money. Let them see you budgeting, saving, and making thoughtful spending decisions.
- Involve Them: Involve your children in simple financial decisions. For example, ask them to help you compare prices at the grocery store.
2. Explain the Concept of Limited Resources
- Money is Finite: Even a very young child can learn that we can’t buy everything we want just because we want it. Repeatedly explaining that money is a limited resource helps them understand that money is something we manage carefully.
- Real-Life Examples: Use scenarios like choosing between two toys to illustrate that we must make choices with our money.
3. Encourage Savings
- Open a Savings Account: Open a savings account for your child and help them understand that savings is the place where their money should live. Keeping money in savings and withdrawing only what you intend to spend is a good starting practice.
- Use a Piggy Bank: Having a piggy bank at home to collect cash encourages kids to keep track of their money and watch it accumulate.
4. Create Earning Opportunities
- Earn Money for Goals: If your child wants a toy or game that isn’t in the budget, challenge them to figure out how to afford it. Can they do some extra chores around the house to earn money?
- Matching Contributions: If the dollar amount is out of their reach but you have the funds, you could offer to match their contribution.
Teaching Middle School Children How to Budget
By middle school, kids have the math skills and conceptual thinking to do some rudimentary budgeting. They’re also ready to learn some of the realities of money management—from you, the in-house money manager.
1. Share Your Household Costs
- Discuss Expenses: Explain how much it costs to maintain your home—rent or mortgage, insurance, utilities, and maintenance. Tell them how much you spend on groceries each week.
- Major Purchases: Discuss the cost of major purchases like a car and how you pay for it.
2. Teach About Credit
- Understanding Credit: Credit is an abstract concept, but it can dictate whether or not you buy a home or finance a car. Explain what credit is, how it works, and what you do to maintain good credit.
3. Use Budgeting Tools
- Spreadsheets: Teach your middle schooler how to use spreadsheets to understand budgets. Ask them to list out how much owning a pet would cost or how much they would need every month to pay for a new gadget.
- Parent-Managed Debit Cards: Consider giving your child a parent-managed debit card like Greenlight. These cards function like bank debit cards but come with an app that allows parents to view and control spending.
Teaching Year 12 Students How to Budget
Teenagers face new money challenges: getting a first job, social pressure to spend, and even high-cost school and extracurricular activities. As their independence increases, so can their responsibilities.
1. Introduce Zero-Based Budgeting
- Complete Budgeting: Creating a budget that accounts for every dollar of income and spending each month is helpful for anyone, but teens are at an especially good financial moment for zero-based budgeting. Income and spending are relatively simple, there’s a fair amount of flexibility, and they aren’t prone to budget-busting surprises like a leaky roof.
2. Identify Money Wasters
- Avoid Frivolous Spending: Your teen does not need to carry a designer handbag or have expensive food delivered frequently. Explain how frivolous spending can hurt their ability to save and to spend on needed items.
3. Reinforce the Importance of Savings
- Consistent Savings: Establishing the habit of setting aside a portion of every deposit for savings is invaluable. Just 10%—every single time—will pay dividends for life.
4. Use Digital Tools
- Money Management Apps: Teens already have an uncanny ability to master payment apps like Beem and Spriggy. Help them get started with mobile banking, show them how to sign up for account alerts, and connect them with money management apps.
5. Involve Them in College Budgeting
- Plan for College: Help your teenager budget not just for their personal expenses during college but also for paying for college itself. Cost can be a huge factor in determining where your kids go to school—and how much debt they might have when they graduate.
Money Management Skills Pay Off
Having the skills to budget and manage money successfully can serve kids well throughout their lives. These are the building blocks for spending responsibly, saving for emergencies, securing credit, building wealth, and enjoying a less stressful financial life. And while it’s possible to learn these skills as adults, cultivating good habits from a young age makes those habits more likely to stick.
Learn more about about other budgeting methods here.
