Effective Ways to Teach Kids Why and How to Budget

When it comes to money, kids and teens can be pretty oblivious. After all, how much do they really know about personal finance and budgeting? They’re not broke like so many other adults today. In fact, the millennial generation is the most educated in history when it comes to secondary education. Yet, so many are still facing struggles when it comes to money management and budgeting.

Why does this happen? Because schools don’t teach students about personal finance or budgeting. As a result, millennials are struggling with credit card debt, student loan debt, and living from paycheck to paycheck like their parents once did. It’s our job as parents to help them learn why and how to budget at an early age because if we don’t, they will struggle even more in their adult life.

Set a Good Example

Kids are sponges. They are always watching, always listening and always learning. If we want our kids to learn why and how to budget, we first have to set a good example. Let them see you paying your bills on time. Let them see you put money away in an emergency fund. Let them see you budget for retirement. This will help them understand the importance of budgeting and why it’s so important to start early. Another way to set a good example is to open up the lines of communication about money.

Don’t be afraid to talk about money with your kids. One of the best ways to do this is to have a family meeting each month. During this meeting, talk about what’s going on in your family financially. How much did you make last month? What bills are coming up next month? What do you plan on doing with any extra cash you have? This will help your kids feel more included when it comes to the family’s finances.

Show Them What’s at Stake

Kids don’t care about money until they have to pay a bill. Once they get their first credit card bill, they care. Once they get their first student loan bill, they care. Money is an afterthought for them until it comes due. It’s our job as parents to show them what’s at stake if they don’t start budgeting now. First, show them what happens when you don’t pay your bills on time.

Have them go online and read some credit card horror stories. Let them see some of the outrageous interest rates people are paying on their credit cards. This will let them know that this isn’t a game and that they could end up in serious debt if they’re not careful.

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Help Them Develop a Plan

Once you show them what’s at stake if they don’t budget, they will want a plan. They will want to know how to budget. Now is the perfect time to help them develop a plan. You don’t have to go into extreme detail. You can keep it simple. But you do have to start somewhere. Let them know that there are four basic categories to budgeting – saving, spending, investing and paying off debt.

Let them know that saving money is putting money away for the future (college, retirement, vacation). Let them know that spending money is for things like food and clothing. Let them know that investing money is for the future (starting a side hustle, investing in stocks). Let them know that paying off debt refers to getting out of credit card debt and student loan debt.

Talk About the Basics of Budgeting

Now that you’ve talked about the basics of budgeting, you can dive a little bit deeper. Let’s start with the first step to budgeting – tracking your spending. You can use a pen and paper or a budgeting app. It doesn’t really matter. The most important thing is that you are tracking your spending. Next, talk about setting financial goals. What do you want to achieve financially?

Do you want to buy a house? Do you want to pay off credit card debt? Do you want to save for retirement? Whatever your goals are, you have to start by setting them. Finally, explain the difference between needs and wants. Needs are things like food and shelter. Wants are any other expenses. Needs should always come first. Wants, on the other hand, should be saved for.

Don’t Forget to Automate It

Kids are always in a hurry to do things. Budgeting is no different. If you want them to be successful at it, don’t give them a ton of homework. Keep it simple. The best way to do this is to automate it. Let’s say you want your kids to start saving for college. Have them send a certain amount of money to their savings account every month. Let’s say you want them to start paying off credit card debt.

Have them send a certain amount of money to their credit card every month. Let’s say you want them to start investing for their future. Have them set up an automatic investment plan. You get the idea. This way, they don’t have to worry about setting money aside. It just happens.

Conclusion

Kids and teens are too young to handle the day-to-day responsibilities of keeping a budget on their own. However, that doesn’t mean they can’t learn how to budget at a young age, as long as they have parents who are willing to teach them.

If you’re a parent who wants to help your kids learn why and how to budget, start by setting a good example, showing them what’s at stake if they don’t budget, helping them develop a plan, talking about the basics of budgeting, and finally, don’t forget to automate it.

Kiddie Kredit is a useful app that you can use to impart financial knowledge to your children. Download the app right now and equip your child with financial education for their future!