Teaching your Children to Budget

Sun, Apr 22, 2012

Budgeting, Financial Advice

You have probably learned the importance of keeping track of your own finances, but if you have children, you can also help them become financially literate. Teaching your children to budget can be one of the most important parenting steps you take, protecting your child from future financial hardship, and also teaching them the value of watching their money.

Often, when kids get their first allowance or monetary gift from relatives, they are so excited that they want to go spend it all right away on candy or something that they will likely use right away. Do you remember what that was like? This is especially true for kids that are well-off. They may feel that they will get replacement money shortly, and that they might not feel the need to save or budget. If that continues to be the case, they may not understand the value of money, or how to balance their spending and saving when they become adults. There has never been a better time than a tough economic climate to help your kids budget their money.

Hold them Accountable

The first step to having your children make a budget is to give them a certain amount of money that they have full responsibility over and discuss what exactly they need to be responsible for with that money. There will be no more money for those expenses. The amount is fixed, as are the expenses that it is intended for.

Establish a frequency for how often they will receive the funds and make it abundantly clear that this money is their own. They are accountable for these funds. There will be no more. Obviously, you will still be spending money on them between payments, but the money you will give them directly is limited.

Hands-off

Keep in mind though that you need ground rules for yourself as well. You don’t get to micro-manage their expenditures or nag at them. They must make the decisions for themselves. Unless you see a catastrophe looming, your job is to let the ship sail on its own. Keep in mind that the goal is not for them to make intelligent financial decisions, but rather to build the knowledge of how to make intelligent financial decisions.

Set Financial Goals

Help them set financial goals. When your child has something in mind that they would like to buy, they are more likely to try and budget their money in order to purchase the desired object. Perhaps they want that new video game, or a pet gerbil. Identifying both long and short-term goals will help teach them that longevity is important. Choose something attainable within a year’s time as well as immediate expenses.

Outcomes-based Approach

There are a few ways to approach goal-setting with your children. An outcomes based approach is very popular, and usually works well with children. However, you can get creative with it too. Perhaps they want to go on a family vacation, which would not be something they could budget for on their own. However, having them pitch in for a night in a hotel room, or for a pass to Disneyland, while you cover the rest, is a goal they can feel rewarded for earning, and will also help them feel like an integral part of the trip planning process. If they pick something like a car, that would likely not be attainable on a kid’s allowance, they will likely give up on their goal, but setting small to medium sized financial goals can be a great way to encourage them to use their money wisely.

As with all parenting, teaching your children how to budget and increasing their financial acumen requires patience, determination and a willingness to allow your children to make their own mistakes. However, it is a lesson that will pay immense dividends in the future.

Written by Jessica Stambaugh for the firm of Katz & Phillips, P.A. where a dedicated Orlando DUI attorney is ready to provide you a free consultation. Many of the team at Katz & Phillips, P.A. are parents and understand the value of building financial acumen for the younger generation.

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