How I teach my kids to budget

I’ve always been really big on teaching my kids about finance and giving them autonomy and whenever I hear of any ideas or strategies that help with this, I jump on it. A few years back someone told me about an interview they’d listened to where a mother described a unique method for doing this with her own children. I loved it so much I decided to develop my own version.

It’s had a few incarnations, but at the moment I’ve structured it so that the kids have a small budget to pay for non-essential, non-luxury items. So if it’s food, shelter, clothing, chocolate or toys, then they are not expected to cover it with their budget. But for things like extracurricular activities (fees, uniforms etc), lost school hats, excursions/incursions, gifts for parties and so on, the kids need to use their budget to pay for it. They are rewarded with an incentive for retaining a balance that is over a predetermined minimum (eg $100 for the first month, $150 for the second month – depending on what I think it reasonable) so they don’t overspend and learn the value of keeping some in reserve.

It’s working fairly well for now, although we did have to boost the weekly amount I paid into the budget because it wasn’t quite enough to cover everything plus leave some to build up for their bigger-ticket items, such as when they need to pay for a term’s activities up-front. I established some firm ground rules and made it clear that the money is not ‘theirs’ but is there for them to use when they need it. The children are learning that they need to schedule in trips to the shop in advance if they need something by a particular date, instead of the item just magically appearing (courtesy of me), which is a nice little by-product.

They’re also honing their maths skills, calculating change and realising the value of delaying gratification over short-term gain. I opened up a bank account for each of them and linked a debit card to it so they can make online transfers and EFT purchases. Our seven-year-old doesn’t understand this concept as much (although the arrival of the card in the mail was very exciting!) and she struggles to remember her PIN, so I withdraw the cash with the card to keep the transactions she’s in charge of as ‘real’ as possible.

Our nine-year-old has a solid grasp of how it works because we started with her quite a few years ago.  She’s developed a pretty high level of financial literacy, however the first system I implemented was way more problematic. My mistake was allowing her to use the money to buy anything she wanted, so she would come grocery shopping with me and then buy a block of chocolate for herself and a packet of bubble gum for her sister… and a small toy and so on and so on. Then she’d overspend and have hardly any money left to pay for the other more ‘essential’ items, like her tennis lessons or a new pair of school shoes because she’d outgrown the old ones. Ultimately, I’d like the children to be able to manage this kind of financial responsibility, but considering there are still a lot of adults unable to cope with the freedom of disposable income, it wasn’t all that fair of me to expect it of my daughter (who was about 7 when she first started the ‘program’).

Now, at age nine and with the modified system, she understands that there’s her earnings (which go into her Spend, Save and Give jars - see my post, “Pocket Money For Jobs” in my house) and there’s the extracurricular budget – and they are two distinct pools of money. With my support, she operates the EFTPOS machines and checkouts with her debit card and carries out internet banking to pay for school costs like incursions and extra program fees (e.g., instrumental). She knows how to log in and check the balance of her account and made the deliberate choice to overspend her budget in the first month, sacrificing the reward for keeping it above $100, in order to acquire a new water bottle. Although she was a little disappointed when her sister received her own small prize, the water bottle consoled her and she has used it daily and looked after it beautifully.

I’m very pleased with how the children have adapted to both the responsibility and the freedom that a system like this offers. I’m hopeful that they develop a solid and seamless understanding of cash flow and avoid the more extreme behaviours of obsessive penny-hoarding or frivolous impulse-spending. It took me quite a few years to temper my own tendency towards the former because I feared that if I didn’t, the latter would overtake and I’d be left helpless, a victim of my own lack of self-control with money. Of course, I can’t do the learning for my children, but I can certainly create for them various opportunities that will help them construct a healthy, balanced approach towards money and personal finances.

What do you do with your kids?



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