Every year since 2012, the investing firm T. Rowe Price has been conducting a survey entitled, “Parents, Kids & Money.” The results have consistently shown that parents are children’s primary and most trusted resource about finances. Kids who discussed financial concepts with their parents are more likely to develop positive financial behaviors. Building a budget is no different; parental guidance is paramount.
Here are a few pointers from financial experts about helping children learn to budget:
Kids and Finance Budget Tip #1: Start Early
According to the Money as You Grow website, an initiative from the President’s Advisory Council on Financial Capability, parents should begin teaching their children about budgeting as early as age three. Financial lessons at such a young age need to be simple and practical, Money as You Grow suggests. It recommends discussing the most essential ideas behind budgeting first:
- In order to buy things, you need money
- Money is earned from labor
- You have to wait to buy things if you don’t have enough money
- You have to decide between things you want and things you need
Based on these conversations, the hope is that children will start to understand that money is a finite resource and that there are decisions to be made before making a purchase: Do I have enough money? Is it something I need? Will I have enough left over for other purchases?
Kids and Finance Budget Tip #2: Shop and Learn
Money as You Grow suggests that parents begin to include their children in shopping decisions at the grocery store to make budgeting conversations practical. In their scenario, parents tell their child how much they have to spend and get items on their grocery list. Then, they explain why fresh fruit is on the list instead of cookies. Then parents let their children help them shop by comparing prices and discussing whether an item is necessary or not.
For many parents, one of the best ways to reinforce these lessons is to allow children to make independent decisions with money they consider their own.
Kids and Finance Budget Tip #3: Consider an Allowance
A study from the American Institute of Certified Public Accountants (AICPA) found that many parents begin offering an allowance to their children by age eight. Any money children receive, says Lewis Mandell, Ph.D., who oversaw the Jump $tart high school financial literacy tests for years, should be accompanied by extensive conversations about how to spend and save.
The MoneyandStuff.info website is a financial resource for teachers, but its lessons about budgeting can be useful for parents as well. Their budgeting lesson plan offers some talking points and suggestions for budget-building activities for kids with allowances. These include:
- Tracking money: where it comes from and how it’s spent
- Sitting down and developing a budget together
- Building a series of goals, both short and long term.
Having conversations like these, in which your child discusses their financial aspirations and concerns, can help solidify their ideas. It can also help kids build a concrete path forward when it comes to building a budget that meets their spending and saving needs.
Kids and Finance Budget Tip #4: Share Your Experiences
In their press release announcing the results of their study, the AICPA makes several recommendations to parents who want to help their children become more fiscally responsible.
One suggestion is that parents should speak openly about their financial successes, mistakes, and decisions, including their budget.
The AICPA recommends that parents talk with their child about how the family is saving for an upcoming expense – say a family vacation – and how the money they save has to come from elsewhere in the budget. Discussing where that money comes from and where to cut back can help children see that the same lessons they’re learning with their own money come in handy later in life.
The same holds true with mistakes. If parents are willing to talk about how they made a financial misstep, it can help their children learn how to avoid similar pitfalls.
The Talk Starts with Parents
Parents are their children’s primary financial role models.
The lessons they teach their kids often stick for life, whether the child is aware of it at the time or not.
Starting early, making finance practical, and sharing your personal experiences can help kids gain a comprehensive, thorough understanding of how a budget works, why its important, and the role it will play in their lives as they grow older.