Budgeting can be boring — especially for kids. It’s not like making music, creating crafts, or even cooking in the kitchen together as a bonding experience. But it is vitally important for their longterm financial stability. So how do you teach your child to budget money?
According to CNN Money, only 41% of Americans have a budget. Consequently, 65% of Americans have little or nothing at all saved and roughly half have not made sufficient plans for retirement. So it’s obviously important. But how can parents convince children to delay gratification today so that they can achieve their goals tomorrow? Here are some steps.
1. Pay It in a Lump Sum
Most parents pay out an allowance on a weekly basis. However, Logan Allec, a CPA and owner of personal finance site Money Done Right, believes that parents need to skip the weekly payouts and put children in a position where they have no choice but to budget their money.
“[T]ry giving them an allowance payment every month or quarter,” he tells Parentology. “My guess is your kids will end up spending all of the money very quickly within a few days of their first lump sum payment. However, it will provide a real example for your kids about what happens when you don’t have a budget.”
2. Share Your Budget
Allec also believes that if parents are more open about how money is spent in the home, it can empower children to build and maintain their own budget. They will also have the budget presented by their parents to use as a template in the present and even 20 years from now.
For parents who do not wish to share their budget in detail, Virginia Boga, Ph.D., a clinical psychologist in New York, gave Parentology this alternative.
“For instance, when you are at the toy store, and your child asks you for a certain toy, you can explain to them how certain toys are more expensive than others and why this time you can only buy Toy A instead of Toy B because it is less expensive,” she says. “It is important to take all the opportunities you can to teach children.”
3. The Budget-Free Method
Leif Kristjansen retired at the young age of 32, which also happened to be two years after his wife did. They pulled this off while living in one of Canada’s most expensive cities and with children, so it will surprise you to know that they actually teach their children not to budget.
Well, sort of.
“The important thing is to have a goal that you care about,” Kristjansen, the founder of FiveYearFIREescape, tells Parentology. “This is true if you budget or not … This goal will motivate you to cut out extraneous expenses and either budget aggressively or just save aggressively to achieve your goal. Then, when our kids have a goal, we show them a path to achieve it.”
The Bottom Line
Budgeting is an underrated skill. Without it, millions of Americans go into debt. Thus, money management may prove to be one of the best skills you ever pass on to your children. They may not be happy about it now, but they will thank you for it in adulthood.
How to Teach Your Child to Budget Money — Sources
CNN Money: Nearly 3 in 5 Americans Are Making This Huge Financial Mistak
CNBC: 65% of Americans Save Little or Nothing—And Half Could End Up Struggling in Retirement
Logan Allec, CPA, Money Done Right
Leif Kristjansen, FiveYearFIREescape
Virginia Boga, Ph.D., Clinical Psychologist