How to Help Kids Learn How to Budget Their Money
Many kids grow up to adopt the same budgeting and spending habits of their parents. If you have spending habits you do not want to pass on to your kids, teach them the value of money and budgeting. Using various techniques and interactive methods to pass on this important life skill, you'll give your child a financial head start that will last him a lifetime.
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Instructions
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Begin your child's financial education as early as possible. Explain to your child where money comes from, how it is earned and provide examples of how money is used in exchange for goods and services. For example, explain how you are able to have water, food, or lights by paying the utility bills and purchasing food from the grocery store.
As your child becomes older, expose them to concepts of interest rates, investment accounts and how credit cards are used. You can start your child's financial education as early as two years old by teaching him the difference between a dime, quarter, nickel, penny and quarter.
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Teach your child what Robert Kiyosaki, author of "Rich Dad, Poor Dad," refers to as "delayed gratification." Define delayed gratification by explaining what a want and a need is.
As your child gets older, explain the difference of an asset and a liability (assets build wealth over time, and liabilities take money out of your pocket). Use examples as often as possible, preferably objects and topics your child can relate to such as his video games and the movies he wants to watch.
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Give your child an allowance and open a joint savings account. Opening up a savings account with your kid allows him to deposit a portion of his allowance and watch it grow. Contact your local bank or credit union to see if they have special no-fee accounts for children.
You can give a child an allowance as soon as they can count money, most likely between the ages of four and five. A good guide for the appropriate amount of a weekly allowance is 50 cents multiplied by the age of your child. For example, a 5-year-old will get $2.50 a week.
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Allocate some chores to your child so she can earn some extra pocket money. This way, she will understand that getting money requires some level of work or effort. Suggest other ways that she can make money such as selling her old clothes or toys at a garage sale or online. Knowing how hard it is to earn money will encourage frugality.
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Come up with a savings goal (for example, a trip to Disneyland) together your child and teach her how to work towards it. Explain to her how compounding interest rates can allow a small amount of money to double if she exercises a little patience. Suggest that your child consistently set aside a portion of her allowance towards the goal.
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Tips & Warnings
Research board games that help teach kids about money. Monopoly, Cash flow 101 and even online games like Lemonade Stand will instill concepts of earnings, savings and loss.
Check in with your child periodically to monitor and discuss his spending, saving and investing.
Send your child to a financial camp to educate him about money and wealth.
