11 Tips for Teaching Budgeting to Children

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Let’s be honest: budgeting is often overlooked in the curriculum. But it’s a crucial life skill that can set up any child for financial success or failure later in life. Without it, they might fail to save money for long-term goals – or end up in crushing debt.


You don’t have to wait until kids are a year away from leaving for college to teach them this skill. In fact, a study by the Journal of Consumer Affairs showed that children as young as five or six years old can save money. So, the earlier you start, the better.


But how do you teach children this particular skill? How do you make sure that when they think, “I need Essaypro writers to write an essay for me,” they’ll have the disposable income to pay for those services? Let’s break down 11 ways you can teach budgeting to children – and make sure your lessons stick with them.

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Jumpstart the Conversation About Finances

If you start early, you’ll need to explain to kids that everything in their life is being paid for by their parents. The clothes they wear, the food they eat, the toys they play with – all of that costs money. And to pay for all of that, adults have to work and do their job to earn their paycheck.


To make sure what you say hits home, use real-life examples. Show them how much it costs to put the food on the table or buy them their favorite toys. Explain what income is and that you can’t spend more than you have.

Help Them Define Their Wants & Needs

Overspending is among the most common causes of financial hardship among adults. So, to help children grow up into adults who live within their means, start with two core spending concepts:


  1. Needs. This is every expense that’s not optional in life. It includes food, clothes, rent, and more. When it comes to spending, these expenses always have the highest priority. You can survive without a toy, but you can’t live without food, right?
  2. Wants. These expenses are optional. Toys make for a great example here. A child wants to have a toy to play with, but they can go on without one for some time. You can’t say the same about clothes or food.

Set Financial Goals Together

You may know people who live with a paycheck-to-paycheck attitude. They spend all the money they earn as soon as it lands in their bank account. But that, as you know, doesn’t allow them to save up for big purchases or set up an emergency fund to pay surprise bills.


Children may have the same allowance-to-allowance attitude. To prevent it from reproducing in their adult life, talk about financial goals. Set them together. But make sure those goals reflect what the kid – not you – wants.

Introduce a Way to Track Their Finances

You can’t know how well your finances are doing without tracking your expenses and income. To teach this skill, you can encourage kids to write down their cash flow in a notebook. Take time to go over their log every week or month, too. And as a bonus, it can boost their math skills, too!


But in case the kid has problems with math due to dyslexia, for example, you can teach them to use a spending tracking app instead. There’s a whole type of such apps designed for kids in particular, such as:


  • FamZoo;
  • RoosterMoney;
  • Step;
  • Current;
  • Greenlight.

Make Sure They Understand the Value of Money

Whenever you get something for free or without effort, you tend to value it less than when you have to work to get it. That’s basic psychology.


If children get their allowance no questions asked, this principle applies here. They won’t understand the value of income.


So, let them earn their money. For example, you can pay them in exchange for doing some chores. (Just remember to have a fixed price list and be consistent in their pay!)

Start with a Piggybank

This is the oldest way to save money, and that’s for a good reason. Once you put the money away, you stop treating it as disposable income. So, set up a piggybank together.


But that alone isn’t enough. Help them determine a rule for filling it up, too. For example, they can put away 20% of their weekly allowance.


Want to make it fun? Decorate the piggybank together or have the kid name it. This way, they’ll be more attached to it – and more likely to remember about saving up.

Set Up a Savings Account in Their Name

If you want to teach budgeting to a teenager, they’re old enough to understand the concept of a savings account. And, it’ll be a better approach towards teaching them how the banking system works, too.


So, switch a piggybank to a savings account in their name. Help them pinpoint its purpose (it can be their college fund, for example). And don’t forget about setting a financial goal for it – and adjusting it if needed!

Offer the Right Incentives

As an adult, you have some incentives to save up. Your contribution to the retirement plan gets matched up by your employer, for example. Or, your bank can pay you interest for the money you keep in a savings account there.


You can propose the same scheme to kids to motivate them to save money. For example, at the end of the month, you can add 20% of the amount they’ve saved to their piggybank or bank account.

Lead by Example

Children learn a lot through imitating the behavior of their parents. So, if you want them to have sound financial habits, reexamine where you stand on the matter.


Don’t worry: if you still have some learning to do, you can do it together with the kids. It’ll only encourage them to follow your advice.


But if you approach all of this with the “do as I say, not as I do” attitude, your lessons are guaranteed to fall short. Children will see the contradiction between your words and your actions, and you’ll just lose credibility.

Become Their Creditor

At one point or another, adults have to take loans. It can be to finance their college studies, buy a house, or open their own business.


How do you introduce this concept to children? How do you ensure they don’t take loans they can’t repay? Play the role of their creditor!


For example, if they want to borrow $100, agree to loan it to them under certain conditions. Say they’ll have to pay it back, together with the interest. Set up deadlines and make an installment plan, too.

Don’t Stop Them from Making Mistakes

You can’t expect a kid to be exemplary when it comes to managing personal finances. They’ll overspend, “default” on their “loan”, or fail to attain their financial goals.


Let them make those mistakes. It’s the best way to learn, anyway – and you can be their safety net. Besides, those mistakes are better made on a small scale, too. So, when they happen, go over them together and help them realize how to avoid them in the future.

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In Conclusion

If you’re a parent, it’s no secret: teaching kids anything takes time. It also takes a lot of effort and patience – and a hefty amount of creativity, too.


But that never means it’s not worth it, especially if you want to teach them budgeting. It’s one of those life skills that can define their lives and set them up for success. After all, where would you be without sound financial habits?