Budgeting

Kids & Budgeting:  When is too Early?

You can read many books or spend your time searching the internet, and you will find many answers to this question.  However, when it comes down to it, it’s rarely too early to start.

Of course, you must keep in mind their ability to process information and what they can and cannot understand, but it’s not always about writing out a budget.  There are many steps involved in budgeting, and they must be learned over time.  For instance, you take your child shopping, and suddenly they seem to want something so badly that they will beg and plead with you right there that it is something they have always wanted.  When, in reality, they didn’t know it even existed 5 minutes before.  It’s called instant gratification…both kids and adults suffer from it.

So, what is a budget when you are talking about kids?  Obviously, it’s not the same type of budget that adults put together, but it does have the same essential characteristics:

MONEY IN
MONEY OUT
ASSESS WANTS vs. REALLY WANT
MAINTENANCE

When adults are setting budgets for the family household, they contain things like rent/mortgage, utilities, food, etc.  The great thing about being a kid is you shouldn’t have to worry about these things.  That’s for mom and dad.  However, you do want to start them thinking about how to save for things they want and ways to keep the temper tantrums down every time you step into a shopping center or grocery store.

Step One – MONEY IN

First, they have to start earning money of some sort to be able to understand the concept.  Generally, at this age, it comes in the form of an allowance that children earn after doing something around the house.  While that is great, be sure they are “earning” money for things that help out around the house and not for those things they should be doing no matter what, like picking up their toys or doing homework.  Decide on chores that are age appropriate and make the pay match.  For instance, I used to wash my parent’s cars, though I do suggest you may want to teach them what to do and not do.  My dad learned the hard way after I waxed his windows.

Step Two – MONEY OUT

Now that the kiddos have some money to their name, they want to spend it.  If you took them to the store after giving them an allowance, I can almost guarantee it would be gone before you left that store.  It’s like hot coals burning a hole in their pocket.  They will fall in love with the first thing they see and never knew they wanted.  You know, more than likely, in about a week they will not have any interest in it at all.  So, it’s time to start working on that instant gratification.  Have them find something that is more expensive but that they really want.  Have them write it down.  Look up the price and have that written down as well.  It’s time to start that budget.  Show them how money comes in and goes out, and how much money would have to come in to make that purchase.  That way when they start to break down in the store wanting to buy some small object they won’t care about in a few days, you can remind them of what they will not be able to purchase or will get put off later.

Step Three – ASSESS WANTS vs. REALLY WANT

This is a conversation you will have a lot.  With a child’s short attention span, they will forget those items on their list when they see something new and fresh, and they will buy them often.  It’s crucial that you keep the budget up to date, especially after they choose to purchase something more frivolous.  They need to see how they got further away from their goal, instead of closer.  It’s not a perfect science, but you will notice they start to make better decisions when it is something they really want.  It is a currency, and you have to find it.

Step Four – MAINTENANCE

Like all things in life, you have to keep at it.  Repetition is how we learn, and for kids, it is imperative.  They are sponges at that age, and the younger you start to instill these principals, the better off they will be.  It’s about starting money management when the dollar amount is much lower.  It’s always harder to correct bad habits after the fact, so why not start with good money management early.

Don’t forget; your kids are watching everything you do, so don’t forget to lead by example.  If you tend to impulse buy, they will see that.  Show them good examples, and they will follow!