Securing a child’s financial future is always of paramount concern for parents. From IRAs and trust funds to CDs and stock investments, there are so many options available. However, budgeting is equally as important in forging a sound and protective financial future for your kids. While most of the burden usually falls on parents, there are many ways to teach children about financial budgeting for the future. In fact, this also helps educate kids about the world as a whole, while teaching them the importance of responsibility and self-maintenance.
What Exactly Is Budgeting?
Budgeting always comes down to two simple factors: how much you earn and how much you owe. You simply take your monthly earnings (work-based salaries, investment incomes and other earned revenues) and allocate portions for bills and payments. These may include:
- Rent, utilities, mortgage, food and groceries
- Car payments, car insurance, health insurance, and medical cost.
- Electricity/energy costs, TV/internet/cable, clothing and related expenses
These are known as vital necessities – and these bills must be paid. Non-essential expenditures include social activities, movies, vacations, outside dining and, in some cases – clothing. While your kids probably do not pay rent or mortgages, they must understand the differences between vital and non-vital necessities.
Your Child’s First Budget
Most kids receive monthly allowances from parents. Older children may also work and earn small but sustainable incomes. Whether via allowances or earned income, here are a few ways to help your children develop sound and lasting budgeting plans:
- Children should try to save at least half of their money. In other words, they should save 50 cents from each dollar, if possible.
- Kids must learn the importance of saving as opposed to spending. You can teach them how to save money for food and essential clothing, but not to overindulge in outside dining and shopping for items they do not need.
- Since they are kids, help them put aside money for social activities. This may include movies, or simply hanging out with friends. However, they should never spend their entire monthly allowance or earnings.
- Kids also need to list their entire daily schedules for proper allocation of funds. This includes school lunches, after-school hobbies and any other activities that they pay for.
By listing their daily schedules and activities, kids will be able to monitor their spending on a weekly and monthly basis. If they find themselves out of money by the end of the month, chances are they will need to rethink their expenses and try to curtail unnecessary purchases that leave them out of pocket.