Teaching Your Child How To Budget Money

[vishenda]

One of the biggest problems facing parents today is curbing the sense of entitlement that children feel. From designer jeans, to extended curfews, to credit cards, many children have an attitude of "I deserve to have the things my friends have" or simply "I deserve to have stuff as well as money to spend." In part, this attitude is encouraged and reinforced by the media, whose primary message is "you gotta have it or you're not cool." However, parents also play a part, often overindulging their children by buying them material things whenever they want them or indiscriminately handing over large amounts of cash.

This overindulgence is sometimes a product of parental guilt. In a society where single parent families are on the rise, and where in dual-parent families both parents often work, it's not uncommon for mothers and fathers to feel guilty about not giving enough time to their children. To assuage their guilt, they often give other things in an attempt to make up for their absence.

Whether you feel guilty and inadvertently overindulge, or your children are simply responding to the messages in the media, I believe that a primary responsibility of all parents is to teach financial awareness and accountability to their children. All too often young adults find that they've incurred huge financial debt because of overspending, and the reality is that with a little simple planning and starting your kids off on the right track, this wouldn't happen.

The first step in teaching fiscal responsibility lies in recognizing that you're the parent, and you're in control of the money and material things you give to your kid. This may sound like a simple concept, but many parents throw up their hands and say "What can I do? All her friends get $X amount per week, I have to give her that much" or "But everyone has Pokemon cards, my child will feel left out if he doesn't have them too." Helping your child learn financial responsibility first means taking back the reins, not buying in to the "I gotta have it" message yourself.

Next, in order for children to learn how to handle money, they first must be given money to work with. Allowances serve this purpose. Let's look at some guidelines to follow when establishing an allowance for your child:

* Begin allowance at around age 6. Prior to that age children are not developmentally capable of handling money.

* Start small and be realistic. How much money does your child really need at any particular age? Six year olds can be given a dollar or two a week, while you might want to give your teenager enough to cover lunch during school hours, or the purchase of their own wardrobe during the year.

* Require that your child, no matter their age or the size of their allowance, buy certain things "out of their own money." For example, if your six year old wants a new pack of Pokemon cards, tell her that she has to use her allowance (even if it means saving up for the cards.) Teenagers can learn to handle a large enough amount of money to purchase their own toiletries, clothing, or other essential items.

* Keep the lines of communication open. Talk to your child about how to budget, what your expectations are, what "line items" on a budget mean. This is part of the teaching that parents have a responsibility to do.

* Give your child enough, but not too much. Every child should have a little money to spend at their own discretion -- whether they're saving for a special toy, or simply want a pack of gum. Often, however, this "discretionary sum" is too large (some parents give $100 - $300 per week to their adolescents) and the child isn't required to account for any of it. Remember that accountability is critical so that later your child won't overspend and get herself into debt.

[debtdude]

Here's an idea with the younger kids...two piggybanks. Let's say they get four quarters. One goes in the savings pig and the other three go in the other piggy bank. If they keep up a routine of placing just a few of whatever they get into the savings piggy, then when they do an "end-of-month" (week/quarter/whatever) count, they'll see what savings really does in terms of having more money.

[jmjj215]

The most important thing we can do to teach our kids is lead out by example.

[DivaJen]

Originally Posted by debtdude

Here's an idea with the younger kids...two piggybanks. Let's say they get four quarters. One goes in the savings pig and the other three go in the other piggy bank. If they keep up a routine of placing just a few of whatever they get into the savings piggy, then when they do an "end-of-month" (week/quarter/whatever) count, they'll see what savings really does in terms of having more money.

We do this with DD (6.5 years old). Half goes in the spending bank and half goes in the saving bank.

[glock35ipsc]

I used THIS KIT as a basis for a savings/investing/planning program I set up for my son. He loves it!

[PRICEPLUS]

My daughter is very frugal and is pretty slow to spend unless she needs to do so! I'd like to think I had a hand in that!

[tabbycat31]

if I ever have kids, I'm going to teach them to handle their money, and divide it in 4 ways.... 30, 30, 30, 10.

30% they can spend however they want. 30% is for short term savings (ie if they want to buy an Ipod, etc), 30% is for long term savings (car, college, wedding, etc), and 10% to a charity of choice (I don't want to force people to give to any charity, however I'd help them find one based on their interests... ie if they're a pet lover, then an animal shelter)

[LuxLiving]

Tabby's 30,30,30,10 plan is what I did with my kids when they were little. As they grew older we expanded it a bit but the premise is the same. We started off with baby food jars labeled 'FrugalSon's Tithe', etc. Birthday money, found money, etc. went into the jars. If they had any money built up to save Long Term we made regular trips to the credit union to deposit it. I think getting kids in the habit of going into a financial building is an important habit to practice. It was just something we 'always did'.

BTW, we all still have our Long Term accounts thusly named only now instead of baby food jars we have 'cyber-envelopes' at online banks!

I like these banks as a jumping off place to begin the journey:
http://www.msgen.com/prod/assembled/...savvy_pig.html

[tabbycat31]

Personally I think the key to charity giving is to find what interests you as an individual, and donate to charities based on that.

My parents never do any charity giving, unless the event is on the news (ie Katrina, 9/11, etc) and I was never taught about it.

As for long term for when (ok if) I have kids...... I'd probably set something up in ING for them..... and before they are old enough to know about money, any gift $$ I would put in a 529 plan.

[PrincessPerky]

under 6 they can't? that is the reason people wont teach their kids, they get in a 6 yer habit of assuming the kid can't get it and forget to form a habit of teaching after..especially since the kid is now occupied 6-8 hours in school, plus an hour or two of homework..no time to teach by then!

While a 2 year old may not understand money the way a 20 year old does, they still should hear of it. Words like 'cheaper' 'saving' and 'best deal' should be normal to them by 6. Words like 'waiting' 'saving', 'splurging', 'bills', 'needs' and 'budget', shouldn't come as a shock to them at 6...Niether should reading, alphabets and math.