Budgeting for kids can seem daunting, but it is actually very simple. Children as young as four should start learning the basics of budgeting while saving up for a desired toy or experience. Budgeting is an essential life skill that will help your kids manage college expenses, secure their first job, and all other financial life events.
Teaching kids about budgeting can even be a fun family activity. Financial lessons for kids can be built around working towards a family experience, vacation, or desired purchase. Curious about how to teach your kids how to budget? We’re here to help!
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What is budgeting?
Budgeting is the process of balancing your expenses and your income. With a budget in place, you’ll be able to allocate a specific amount of resources to fixed expenses and then decide ahead of time how much money to put towards optional purchases.
You can plan ahead for big purchases by saving up for them while also ensuring that you have enough money to pay for your current expenses as well. At first, budgeting can feel restrictive or limiting. But when it’s done well, a budget can give children a sense of freedom and the control that they crave.
Teaching a child how to budget can help them learn about the importance of making wise financial decisions. But how do you explain budgeting to a child? Here’s how!
How do you explain budgeting to a child?
The way you explain budgeting to a child will depend on the age of the child. For very young children, you can explain budgets as being a way to save up for a desired toy or set aside money for what they want to buy in the future.
As children get older, it’s helpful to teach them about the different expense categories and the various ways they can divide their income or their allowance. But at its core, no matter how old your children are, the basics of budgeting are the same for everyone.
Here’s what budgeting is all about!
- Learn how to balance income and expenses.
- Create budget categories for your lifestyle.
- Set short- and long-term financial goals.
- Adjust your budget as your goals and expenses change over time.
For a child, their budget categories might include long-term savings goals, like college tuition or a car, along with short-term goals, like toys, clothing, or experiences.
Your budget will look different from other people’s budgets because everyone’s lifestyles are unique to them! For instance, some families prefer to teach their children percentage budgets, like 20% for savings, 10% for charity, 50% for essential expenses, and 20% for something fun.
Other families like to set specific amounts for each category based on the child’s current income or allowance and needs. At the end of the day, it’s a personal choice.
Why is it important to have a budget for kids?
It is important to budget for kids because it will help budgeting become second nature. By the time those children are adults, budgeting will be really easy for them.
A great way to do this is by letting your kids look at your RoarMoney account and help them explore the app on your phone. Show them how the spend tracker works, and teach them about depositing cash with MoneyLion to familiarize them with the process of saving money or budgeting.
5 budgeting tips for kids
When teaching kids budgeting, the key is to remain consistent. You can show them part or all of your family budget, or only share with them the section of the family budget that is related to their expenses. It’s up to you, but overall, the best way to teach your children is to lead by example. Here are more tips for budgeting with kids!
Make it fun
Children learn best when activities are fun. Explain the concept of budgeting in a way that will resonate with them. Use their favorite TV show characters or books when creating examples that explain how to budget.
For instance, try this example: SpongeBob wants to buy a new bike, but it costs $100. If he gets $5 per week and spends $1 on candy every week, how long will it take for SpongeBob to afford his bike?
You can also set savings goals as a family. This can help motivate and excite your kids when it comes to the process of budgeting.
Explain wants and needs
This is a concept that can be hard for even some adults to understand, which is why it’s important that you explain budgeting to your kids early on in life. Explain basics to them, like food, water, shelter, school, and clothing, so that they understand that certain ideas are necessities, meaning they should be prioritized.
The opposite of a need is a want, and something your children want is not the same as what they need. Remember to teach them the difference between the two. You can explain that a want is something like technology, trendy clothes, fancy bicycles, trips to the movies, a day at the amusement park, candy, or other treats.
Set long-term goals
Discuss the importance of saving for college and putting money aside for their future when you are having a discussion about budgeting. This is the perfect time to explain the concepts of investing, compound interest, and building long-term savings. You can show them your MoneyLion investment account and explain your family long-term savings goals.
Set achievable goals
For budgeting to really make sense in your child’s mind, you should help them set goals that they can achieve within a few weeks. This will help them better understand budgets because they will see how good it feels to reach their goals.
You can help them achieve their goals via incentives. This is a great way to emulate an employer’s retirement savings plans or other long-term investment options.
For example, if your child saves 100% of their allowance or income and puts it towards their long-term goals instead of spending the money, you can offer to double it, add 50% to their savings, or give them a bonus as a reward.
Teach them how to track expenses
Everyone usually has an idea of how much money they earn, but it’s all too easy to let savings goals slide in the face of an impulse. You can help your kids manage their budgets better by setting up a system that helps them track their expenses.
You can help them track their expenses via a handwritten list, an excel spreadsheet, or an app. Whatever works for your family is best! Just remember that the main idea you’ll want to teach your kids is that small expenses add up and every purchase counts.
Budgeting for kids creates financial freedom
It’s important to teach kids to budget because it not only imparts an essential life skill upon your kids, but it also gives your children a sense of control. Suggest ways for them to earn and save so that they can achieve their goals!
The next time your child is eager to buy something, ask them where it falls in their budget, and if it doesn’t, help them figure out how they can save up for it. The more comfortable your children are with managing their own budgets, the more prepared they will be when they are in charge of their own finances as adults.
They will also be more likely to achieve financial freedom! Budgeting creates a sense of freedom for kids in a way that will multiply as they get older.
And don’t forget to teach your kids how to save their extra change. You can show them how it works with MoneyLion’s Round-Up feature, where extra change is invested for big savings over time. Additionally, MoneyLion’s Safety Net tool will give you a glance at all of the financial tools that MoneyLion has to offer, which can help you prepare for life’s unexpected events.
With so many tools available, your children will come to know the freedom of saving and the tools that are available to help them save up as well.