Practical Tips On How To Teach Your Child About Money (#4 of 5)
Teach Them How To Do A Budget
Do you follow a budget? If you work in a business you have no choice, however not many people follow a budget at home. It’s still important to teach your kids the fundamentals of budgeting though as budgets are one of the most powerful tools you can give your child to learn how to control their spending.
Prepare a budget
Start by explaining what income and expenses are. Then discuss the difference between needs (e.g electricity, rates, insurance) and wants (e.g chuck steak vs fillet steak, holidaying in a camping ground vs staying in a motel).
Tell them they should prioritise their needs first then allocate the balance amongst their wants. It’s highly likely they won’t have enough money for everything so they have to learn to accept they can’t have everything they want.
For younger children, get them to create a budget for a birthday party or a family holiday. Give them a maximum amount to spend then see if they can achieve a satisfactory holiday with the amount of money available. Or if they’re going to a birthday party, give them a budget they need to stay within to shop for a gift. This will help teach them the value of money and is a good opportunity to practice comparison shopping.
If your child is older, get them to create a monthly budget for the family using an online budgeting tool so that they get an understanding of living expenses. Online tools outline all the expenses most families have and serve as a checklist so they don’t miss anything.
Getting them to prepare real life budgets helps them learn cost relativity and the value of money. It is really important they work with actual costs. You won’t be doing them any favours by hiding costs from them. They are going to find out one day and the sooner they start understanding real costs, the sooner they will learn the value of money.
This is the approach we take in our gamified online financial literacy program for 10-14 year olds: www.moneytimekids.com/for-parents
Keep an eye out for # 5 in this series shortly.
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another idea would be to tech them about saving and investing, that time is on their side when it comes to investing, and the power of compound interest