One of the most overlooked skills that should be taught to kids is budgeting. The truth is, teaching your child how to manage their money will be very beneficial for them once they start earning a paycheck from a job. So, at an early age, try the budget tips below with your child so you can teach them good financial habits.
Earning Their Allowance
If you are a parent who chooses to give their children monthly allowances, this is a perfect opportunity to teach them some budgeting skills. Assign them weekly chores or tasks that are appropriate for their age and abilities to earn their allowance. You can even give them a “wage” that they can earn per hour. This gives them a great idea of what earning money is like in the real world. If you do not believe in paying your child to help around the house, you can come up with a few different tasks that you will need help with that are outside of their weekly chores. Then, you can pay them for their extra work.
Spending Their Allowance
Once your child has earned their money through helping you with household chores or other tasks, you can teach them how to spend it. Get your child some jars for them to keep their money in. Sometimes, clear jars are more helpful with teaching budgeting skills than old-fashioned piggy banks, as the child can see how much they have, just as you can with your bank accounts.
Different Jars for Different Purposes
Only giving your child one jar to act as their “checking account” can create the idea that anything earned should be spent. We know living paycheck to paycheck isn’t the best financial habit to be in, so you will want to take steps to teach your child the difference between checking and savings accounts. To do this, you can give them different jars to represent different bank accounts–saving and spending. When your child wants to save up for a toy, instruct them to make contributions to their savings jar. If they don’t have anything they are saving for, instruct them to put some of their earnings into savings, and some into their “checking account” jar. If your child is old enough to understand, you should explain that they should always save a portion of their “paycheck”, even if they don’t have something to save for in the moment.
With their spending jar, they can use this money to buy candy, coloring books, or anything else that is not expensive enough to save for. Many parents also introduce a third jar used to hold money to give to charities or nonprofits. This is an excellent way to create a habit of charitable giving in your child, and also teach them how to share. Additionally, in order to make their “bank accounts” as realistic as possible, you can pay them interest on their savings account at a rate you feel comfortable with.
Instilling Budgeting Skills in Your Kids
Teaching your kids how to budget and save up their allowance will set them up for success when handling their finances in the future. With the easy methods mentioned above, you can explain to them how bank accounts work, and how their work around the house can lead to big rewards. If you have any questions about budgeting, please feel free to contact one of our advisors today!
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