Budgeting through the Years
It’s fun to watch the different ways our children approach money management. One child will spend freely in real life but hoard cash when participating in a game that involves play money. Another child is content to watch her cash balance grow over time; she’s in no hurry to spend, whether in real life or in a game. She’s not selfish; she’s just selective. Another child loves to spend her money on gifts for others.
Different personalities and different comfort levels are revealed in the different faces of our children, but all should be operating within the framework of the four main financial principles we have already talked about.
Financial Principles
- Do not live beyond your income.
- Plan ahead for upcoming expenses.
- Impulsive buying can lead to problems.
- Budgeting can help you handle your money wisely.
Our children need to learn to operate within these principles whether they are entrusted with thirty cents or thirty-thousand dollars. Let’s talk today about some practical ways to reinforce those principles as the children grow.
Budgeting Basics
Probably the easiest way to introduce budgeting is to use the give-save-spend approach. Teach the child from his first allowance to divide his money between those three categories.
If, as the child gets older, you notice that she is having trouble planning ahead, you could create two sub-categories called “save a little” and “save a lot.” The Save a Little category would be for short-term goals, like upcoming gifts or events. The Save a Lot category would become the long-term savings for future household or education expenses.
As the child masters the concept of dividing his income between categories and grows in his understanding of math, you can introduce percentages. Help the child calculate what percentage of his income he should allocate to each category. We like to break it down into ten percent for giving, twenty-five percent for saving, and sixty-five percent for spending. If you’re using the two sub-categories, the breakdown might be ten percent for giving, twenty-five percent for Save a Little, twenty-five percent for Save a Lot, and forty percent for spending.
Some families even teach their children about taxes by having a family fund that each child is required to contribute a certain percentage or amount toward. Those funds are then used for a project or event that benefits every member of the family. We, personally, don’t use this approach, but it’s an interesting concept.
Increasing Responsibility
As the child shows proficiency in handling the money he is given, you might consider increasing the amount given while also increasing the child’s responsibility. For example, you could give your child the responsibility to buy his own clothing. Simply increase his allowance the amount that you usually spend on his clothing, add a Clothing category to his budget, and go shopping with him until he learns how to spend clothes money wisely. From that point on, the financial principles take on even more meaning as he learns to plan ahead for still another necessity and, possibly, learns again the consequences of impulse buying.
Remember, if the child yields to impulsive buying, then discovers he doesn’t have enough money left for what he had planned or for an unexpected expense, don’t bail him out. Better that he learns this lesson now than when he has a family to support.
Near the end of your child’s training, as she nears adulthood, give her the assignment and responsibility to be the family bookkeeping for six months. She becomes responsible to pay all bills, handle all deposits, balance the checkbook, enter all credit card purchases from receipts, and any other financial activity that she would encounter as an adult in her own household. Of course, you will look over her shoulder for the first few months to demonstrate, encourage, and double check. This type of responsibility can give your child many adulthood advantages. She will
- practice keeping track of bills and paying them on time;
- appreciate the amount of money it takes to run a household;
- get a feel for how much various services and consumables cost; plus,
- learn more advanced features of the budgeting software.
Please don’t neglect this important home skill of teaching your children how to manage money. You can do it by modeling good financial stewardship yourself, helping them budget an allowance through the years, and increasing their responsibility as they consistently adhere to the four financial principles.
Q & A
Q: What should I do if my daughter doesn’t have enough money to buy a gift for someone?
A: A large part of the answer to this question depends on the reason she doesn’t have enough money. If it’s a matter of poor money management, don’t bail her out. Instead, offer some alternative ideas to help preserve her dignity yet stay within her means. For example, she could give a less-expensive handcrafted gift or give one or more certificates for services she could perform (like backrubs, cookie deliveries, dog-walking, house-cleaning, etc.).
If the reason she doesn’t have enough money is that she has handled her money wisely but simply is not receiving enough allowance to buy personal gifts, offer to go together on a family gift. She can contribute as much as she is able, and you will include her name on the card. Then have fun discussing what that family gift could be and shopping together.
Q: How do you have the right amount of cash for each child’s allowance each week?
A: When the children are young, we give them coins out of a pocket-change jar. Once they get old enough to understand addition and subtraction and basic computer skills, we use a software program to track their receiving, spending, and balance. So we don’t have to give them cash; they simply keep the accounts. Whenever a child makes a purchase, I pay for it and she makes a corresponding expense entry in her account. Whenever a child is supposed to receive an allowance or receives a gift of money, she makes the corresponding income entry in her account.
Two great advantages come with using financial software: (1) I don’t have to keep track of cash; and (2) the children are learning to use the same tool I use to track our family finances.
