Budgeting for Kids – Teach Them How to Manage Money

Budgeting for kids?  Really? Let’s face it. Children are expensive. Just providing the basic necessities like a roof over their heads, food in their bellies and the extra usage of the basic utilities come at a high price.

That doesn’t even include the hidden costs of living, like insurance, auto maintenance and health care. Add it all together, and you can start to see the pink tint in your checking account balance. It can be scary. Budgeting for kids may sound like too much too soon. But it’s not. The sooner we teach or children this skill, the better.

Budgeting for Kids May be a Scary Thought

a young girl working on her budget

If budgeting for kids is scary for you, how do you think your children will feel when they move out on their own? When they are faced with a paycheck that barely stretches far enough to pay for necessities – forget about far enough for anything in the ‘want’ column?

Personally, I know how hard it is to make ends meet. As a young mother, I did not want my children to face that reality without being prepared, so I put my kids on a budget.

a yong child washing dishes with her father

I was one of those mean moms. My children did not get an allowance for doing chores around the house. My attitude was that they also lived there and helped to create the mess. They could certainly pitch in and help keep it clean. I assigned chores according to age and ability.

At four years old, James’ bed-making skills left a lot to be desired. But he was required to learn and to do it. I offered assistance when his short little arms couldn’t stretch the distance. Sarah, two years older, was expected to do a bit more.

Working for the Extra

a young boy mowing the grass

However, there were other things that needed to be done, and if they wanted to earn some money, they could help with those. Payment was commiserate with the type of work to be done, and the amount they did.

As soon as she was able, Sarah babysat for spending money. James would help his dad, or mow lawns when a neighbor needed it. Grandma and Grandpa were always good for a job or two, as well.

When teaching your children basic life skills, one of the first things they need to learn is how to manage money. At some point in their life, they will have both income and expenses to deal with. How they handle their finances is what will keep a roof over their heads and their families fed.

a young girl putting coins in a pink piggy bank

As they collected their ‘pay’, I had them place it in a cigar box. I also had them write it as a ‘deposit’ in an extra check register that I got from the bank. If they wanted to spend any money, they had to mark it down as a withdrawal. Occasionally, both of them would see something they wanted. Since that was a lean time for Randy and me, we weren’t ready to dole out cash for just any whim.

Instead, we would have the kids determine the price of the item, add the tax, and then check their ‘bank’ for available funds. If the cost was more than they had, then we talked with them about ways they could earn the extra money.

If the funds were available, then we explained how they would have very little to nothing left for something else they might want – like going to a movie on the weekend. It didn’t always sink in with them as children, but as adults, both of my kids can be tight with their money.

Kids on a Budget Need Math Skills

a young teen counting her money

Basic budgeting for kids takes the simplest form of math – addition and subtraction. But in order to really budget, you need the skills of projection. The smartest way to budget is to project what expenses you are going to have within a one-year period. The electric bill may not be as high in the winter as it is in the summer, but either way you need to be aware of what you might owe.

Around here, there is always an emergency that requires a hefty sum. In order to be prepared, I use the advice my mom gave me when she taught me my first budgeting skills: 10% to tithe. 10% in savings (always pay God and yourself first). Mortgage, other loans (like credit cards – she always felt like they fell into the loan category), utilities, gasoline next.

Figure up your yearly insurance bill and put 1/12 of it in savings each month, along with that 10%. And always try to have another 10% for fun. She told me that if I only paid my bills, and didn’t allow for any fun, then I ran the risk of spending the rent money on a weekend fling and would end up without a roof over my head. Wise words, Mom.

Kids on a Budget Need ‘Shop Class’

a red toolbox with screwdrivers, hammer, pliers, and wrenches

The accumulation of money seems to be a driving force in the world today. The more you have, the happier and better off you will be. Unfortunately, that is far from the truth. In reality, money is a necessary tool that provides us with the basic necessities – a roof over our head, food, insurance and utilities. The best thing we can teach our children is how to use this tool properly.

You do not use a nail to saw a board in half. A screwdriver doesn’t work to drive a nail. A wrench won’t get a screw out of the wall. If we teach our children that money is a tool and not the solution to great happiness, they will have a better understanding of how to use it. Let them find out for themselves at an early age how to earn it, and they will probably have a better appreciation for it, instead of elevating it to some unattainable god in their life.

Budgeting for Kids Needs Psychology

a man, woman and child putting coins into a pink piggy bank

Every human needs to feel secure in their life. To not know where your next meal is coming from, or whether or not you will have a roof over your head next month can create such a significant amount of stress that you may have added medical expenses to an already stretched-to-the breaking-point budget. To live within your means, with a little left over, helps to give you that secure feeling.

Feeling secure means you can sleep well at night, and we all know a good night’s rest is one of the first ways to remain healthy.   That isn’t to say that emergencies well above our financial comfort level won’t happen, but to know that we are able to budget for those contingencies and have a credit score good enough to secure a loan to make it through is comfort in and of itself.

Basic Budgeting for Kids

a small calculator and a financial spreadsheet

When it comes to budgeting for kids, it’s best to start simple. If you have access to a spreadsheet program such as Excel, you can quickly and easily prepare a simple budget.

If not, just use a notebook. I have used both and find them both to work well. Kids love to be on the computer, so it may make it more enjoyable to them to use a spreadsheet. Plus, it gives them the added advantage of learning the software.

The Basics for Budgeting for Kids

Here is a very simple example of how to set up a budget. The first portion is the income, and the second is expenses. At the bottom of each month, have your child add or subtract the income from the expenses. (If you are using an Excel Spreadsheet with formulas, Excel will do the addition and subtraction for you.)

Once the total amount is determined, it’s time to teach them what it means to be ‘in the red’, ‘in the black’, and being ‘in a gray area’ with their finances.

a teenager holding an empty wallet

Being ‘in the red’ means not having enough income for the amount of expenses they have, and how to adjust accordingly. Being ‘in the black’ means they have sufficient income to cover their expenses. If the total amount is zero, or just slightly on one side or the other by a few cents, that would be considered being ‘in a gray area’.

A gray area suggests they need to pay closer attention. This is when you teach them to look back over their income and expense sections to see if anything can be adjusted.

An Example Budget

 JanuaryFebruaryMarch Total
Income
Allowance20.0020.0020.0060.00
Jobs10.0030.0025.0065.00
Gifts50.0050.00
Other
Total Income30.00100.0045.00175.00
Expenses
Tithe (10%)3.0010.004.5017.50
Savings (10%)3.0010.004.5017.50
Clothing10.0010.0010.0030.00
Entertainment20.0020.0020.0060.00
Toys/Technology50.0050.00
Total36.00100.0039.00175.00
Difference(6.00)(0.00)6.000.00

As you can see in the example, your child has just budgeted for more expenses in January than he or she has income. Use this as a teaching example. Explain that he or she will either have to work harder to earn more income or will have to go without that new shirt or going to the movies that month.

Take Budgeting for Kids a Step Further

Now that you have taught your child how to set up a budget, now may be a way to show them how it can apply to their future. Here are a few highlights to teach them why budgeting for kids is important:

  • Creating a budget is an excellent way to keep track of your finances
  • It shows you where your money is coming from, where it is going, and places where you can cut back
  • It offers ways to see at a glance where you need to increase your income or decrease your expenses in order to stay ‘in the black’
  • Budgeting for Kids is a great way to teach the importance of savings
  • Learning how to manage their finances is a way to teach them the value of a dollar
  • This is a perfect time to teach them Need vs Want
  • Offer tips on how living a frugal life can help them stay out of the red
  • How much they make isn’t as important as how the spend it. They could make millions, but if they spend more than they earn, they aren’t any better off than where they started

Budgeting for Kids – A Perfect Life Skill for Children

As an adult, we know how difficult it can be to manage our finances. Through experience, we have learned to anticipate for unexpected (and unpleasant) surprises. Our goal is to keep a roof over our heads, feed our family, and provide the best life possible.

When you teach your children how to manage their money at an early age, it can go a long way towards preparing them for the day they have a home and family of their own.

Make Budgeting for Kids one of the most important basic life skills you teach your child. By doing so, you give them a stronger start to their financial future.

Helpful Budgeting for Kids Resources

Need Great Reference Material?  Check out these great books!

Budgeting for Kids

Do I Need It? Or Do I Want It?

Budgeting for Kids

Smart Money Smart Kids

Julie Murphree is a blogger, newspaper columnist, and speaker on all things ‘Living a Simple Life on the Farm’. She is the author of \\\'The Farm Wife – Living a Simple Life on the Farm. She and her husband have 60 acres in NW Louisiana where they actively work on living as sustainable as possible.

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