Teaching Budgeting to Children

For my wife and I it’s that time of year where we start talking about money a lot more than we do the rest of the year. We talk taxes. We talk savings vs. debt payoff. We lament past decisions. We hope for better decisions from our future selves. And we re-visit the budget document we created eons ago.

We have often talked to our kids about the cost of things, and we’ve done our best to explain the difference between needs, wants, and long-term goals. I know there are times all they hear is “no” when we say that we can’t buy that special gizmo because we need the money for more important things like food and the mortgage. Yet we still talk to them about this for current understanding and long-term foundation building.

Our kids are 10, 8, and 5 years old, so we aren’t sitting them down at the table, showing them the budget, and then breaking down each line item of income and expense. At this stage we cover things in broader terms. I see a time we may open up the books per se to give them a deeper understanding. For now, we focus on our principles of budgeting and money:

1. Make a plan and stick with it
2. Know the difference between “I gotta have it!” and “I actually need it”
3. Money is a resource we can use to help others
4. Prepare for the unexpected

MAKE A PLAN AND STICK WITH IT

This is the basis of most of how I do things. I am a list-maker and a planner. And money is no different. We’ve used a couple different budget forms/templates over the years. We’ve used budgeting apps, we took Financial Peace University, and we’ve also built (and currently use) a Google sheet. I’m glad we’ve gone through a variety of methods to better inform our current document and more importantly how we use it. Having a “perfect” document means nothing if we can’t easily use it and don’t actively keep engaged with it.

We’ve shared this idea with the kids by simply talking about the existence of the budget. We’ve also talked about having financial meetings to touch base on our budget. At this stage that’s the extent of where they need to be, but it gives the foundation for future conversations and understanding.

This principle also comes into play when our kids are talking about wanting to buy something or wanting our family to buy a different house. We have had the chance to help each of the older kids make a plan for something they wanted to get from the store when they didn’t yet have enough money. We’ve had them follow through with the purchase on their own, and we’ve also watched them take the plan to the finish and rewarded them by buying the item for them.

KNOW THE DIFFERENCE BETWEEN “I GOTTA HAVE IT!” AND “I ACTUALLY NEED IT”

This has been a big teaching moment on many occasions. I will point out it is much easier to explain the difference between wants and needs to our 8-year-old and 10-year-old than it is to explain to our 5-year-old. The ideas of survival and delayed gratification are often above younger children’s understanding.

We’ve approached this by explaining the pillars of our family’s day-to-day survival — food, shelter, insurance, car, and utilities. This way we can then point out we can start dealing with savings, debt, and the “fun things” once the pillars are covered.

One other way that we’ve discussed this with the kids is to point out that we will generally buy the good option not the cheap one or the best one. We need what will be effective and will hopefully last a long time. We don’t need to have the shiniest widgets to be happy. We aren’t minimalists, but consistently try to drive home the importance of experiences over things.

MONEY IS A RESOURCE WE CAN USE TO HELP OTHERS

Our kids are well aware that even though we don’t have the newest and best things we are still very fortunate. We have always made a point to have them with us whenever possible as we do service projects. And we’ve talked openly with them about how we could donate money to this or to that.

Our oldest has decided that she wants to raise money through a lemonade stand. She made a plan for which charity she will donate to and set a goal for how much money she wants to raise. She is also trying to think of other items she could sell in order to make more money for the charity. I’m counting this as a win.

PREPARE FOR THE UNEXPECTED

This is one that was very difficult to build into our budget, and therefore hasn’t been explained as much to our kids. A general savings account is nice, but it’s crucial to have money set aside for emergency situations like car repairs, failed appliances, or sudden job loss. I would guess that our oldest has heard us talk about being grateful for our emergency fund, but the other two likely haven’t caught wind of it. And none of them likely remember when we had those expenses arise without an emergency fund in place.

To an extent we’ve talked about this by talking about making a plan, but this is one that we’ll need to spend some more time on in the near future. I want to make sure they are aware that we can’t predict the circumstances we have to face, but we can prepare ourselves to handle whatever gets thrown our way. This goes for financially and emotionally.

Our overall goal as parents is to prepare our children for life now and in the future. We want to give them the tools to survive, succeed, and thrive. I know it wasn’t always successful when I attempted to explain things logically to my kid as a two-year-old. But I know that those attempts created the foundation in me for the conversations I can have with them now that they better understand. It isn’t always about building their foundation. Sometimes we need to build our own foundation first.

New Year’s and Me

Today is New Year’s Day. To me that means it’s another day with a different date. I honestly don’t understand all the hubbub and celebration for New Year’s.

On the face we are celebrating the calendar turning, and by that logic we should also be celebrating the start of each month and even the start of each day. This new digit in the year doesn’t automatically wipe clean everything we’ve done before. It doesn’t guarantee success moving forward. It doesn’t erase pain and loss.

I’m not big on New Year’s resolutions. I’m all for goals and plans, but a resolution that you won’t start until a certain date and must end or happen before a certain date that is defined by the calendar and not by you is far less likely to be successful.

I can hear the boos now. I can hear some folks calling me a cynic. That may be true, but what I’m really saying here is that we can’t live our lives defined or directed by a calendar.

As I am one that makes and lives by lists you would think that I would be all for the resolutions and the intrinsic goal setting that they create. But to me they just don’t cut it.

If we want to make year-long resolutions it would make more sense to do them at our birthdays. That is an individual time that matters to us personally, because that’s when our age changes (and at certain ages that means different privileges are afforded you). This makes the process more personal, and if it’s more personal it’s more meaningul. When it’s meaningful it is more likely to keep our attention and energy.

The one clear instance it makes sense to use the new year as a goal setting time is in business. In that case you have a clear set financial goal for the year, and every other goal that you create for the business should lead toward that year-end financial goal.

The new year does give the imaginary barrier for your brain to process the idea of starting something new or correcting a habit. It’s not a concrete thing, and that is probably why I don’t see its value. But I do love the idea of people giving themselves another chance and allowing themselves a fresh start. But we don’t need to wait for the new year for this to happen. We can make those decisions anytime of year.

When we recognize that we’ve stepped off the path or we see a better path along the way there’s no reason to wait. Make that move. Take the step toward improving whenever that step arises. Use that momentum and that initiative to help you propel further, stronger, and likely more sustainably.