How to Teach Your Child About Budgeting

Co-authored by Brian Stormont, CFP®

Last Updated: July 22, 2022 Approved

If you want to teach your child the importance of sticking to a budget, give yourself a pat on the back! You've already taken the first step toward molding a responsible spender. Teaching your child about budgeting is a multi-year process that begins as early as kindergarten and extends through adolescence. A good roadmap to success includes starting with the basics in early childhood, letting them help with the family budget in middle school, and giving them some freedom in high school.

Part 1

Part 1 of 3:

Budgeting in Elementary School

Setting a good example is a big part of teaching young kids to budget wisely. Paying with cash instead of using a credit card at every opportunity shows them that things are bought with real money, not pieces of plastic. Explain to them that it’s easier to budget when you spend up front, rather than owing something later.^{[1]
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Show your kids what it’s like to deposit money into a savings account. Hold them up to the counter and let them ask the teller questions, or let them pass over the money for a deposit. Showing them that banking can be fun is a great way to get them excited about budgeting.
Sit them on your lap while you go through reviews online or look for coupons in the newspaper. Explain what you’re doing or, with older elementary schoolers, make a game out of it and see who can find the lowest price first.
Pay with cash instead of credit cards. Don't buy things on impulse. Let your child watch you comparison shop. Bring them to the bank when you put money into your savings account. Explain what you're doing while you're doing it.^{[2]
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Open an interest-bearing savings account for them. Deposit the money they receive as gifts if they're very young. As they near the end of grade school, let them spend about 80 percent of what they receive. Save their monthly bank statements and create a graph to show them how the interest on their account is making more money for them.
- If you don't have enough money for an initial deposit, store the money in a piggy bank until you save up enough.
Choose glass or transparent plastic so your child can see money accumulate over time. Point out each deposit and how it makes the pile of money grow larger.^{[3]
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Show your child that things cost money. Have them take a few dollars out of the jar after you've let the money accumulate for a while. Bring it to the store to buy something for them. Then, let them watch you hand the money to the cashier to pay for the item(s). This visual demonstration will stick with them longer than a lecture will.^{[4]
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- Once your children start saving money, let them decide how they want to spend it. That way, they'll begin to have a real understanding of how money works.^{[5]
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  Brian Stormont, CFP®
  Certified Financial Planner
  
  Expert Interview. 21 July 2020.}
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Give them an allowance. Start with a small amount as soon as they're old enough to understand that money can buy things. Pay them their age (or half their age) in dollars (or pounds, Euros, yen, etc.) each week. For example, if your child is five years old, give them $5 per week.^{[6]
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- Try creating an allowance system that's tied to your children accomplishing certain chores or schoolwork goals.^{[7]
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  Brian Stormont, CFP®
  Certified Financial Planner
  
  Expert Interview. 21 July 2020.}
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Help them divide their allowance. Pay them in bills and coins that they can deposit into different containers designated for different purposes. Let them keep 80 percent of their allowance for spending. Then, have them put 10 percent into long-term savings for large purposes and 10 percent into short-term savings for smaller purchases.^{[8]
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- Encourage your children to give to charity from an early age. For instance, you might create a rule that every time they spend money from their savings, they have to give 10% of that amount to a local nonprofit that means something to them.^{[9]
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  Brian Stormont, CFP®
  Certified Financial Planner
  
  Expert Interview. 21 July 2020.}
10
Play board games with your child that use fake money. Your child can learn some basic money handling skills by playing board games that incorporate fake money. Try incorporating some money handling board games into a weekly family game night, such as Monopoly, Game of Life, Payday, and Moneybags.^{[10]
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Part 2

Part 2 of 3:

Teaching Good Money Practices in Middle School

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Review the family budget with your children. This is especially helpful if you're also trying to teach them to help cut down on expenses. Show them how much money you earn each week and explain that they can't spend more than that amount.
- This step requires quite a bit of trust. Explain to your child that details of the family budget should not be discussed outside the family.
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Let them help with the shopping list. Have them look in the kitchen cabinets and refrigerator to figure out what the family needs for the coming week. Then, review the list with them before going to the grocery store. While shopping, hand them a calculator to see how close you are to your budget as you add more items to the shopping cart.
- If money is tight, try planning your meals around what's on sale and which coupons are available. Have your child look through store circulars and help you clip coupons.^{[11]
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Teach them to comparison shop. At the store, ask your child to find unit prices on items. Have them divide the price by the net weight or number of contents in the package. This will help them to become more frugal shoppers.^{[12]
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- For example, a 5-oz. bag of chips costs $3, while a 10-oz. bag costs $5. If your child does the math, they'll find that the $5 bag is the better bargain at $0.50 per ounce (as opposed to the $0.60 per ounce on the $3 bag).
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Make a spending plan. Explain what they can and can't buy based on how much they've saved. Tell them that they might have to wait to buy the things they don't really need if they come up short. Turn it into a math lesson as an educational bonus.^{[13]
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- For example, their account balance is $100, but they want a $60 video game and a $50 jacket. After some simple addition, they'll discover that they don't have enough money for both. They'll have to choose one or the other.
5
Have them work for their allowance. Consider it a reward for doing their chores. Tell them that if they want to save up for shoes before the store's sale ends, they'll have to work harder for the money. This will teach them that they must earn money and not just expect it to come out of nowhere.^{[14]
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- Assign a different monetary value to each chore. It might help to pay more for the less appealing chores. Let's say your child hates washing the dishes but doesn't mind mowing the lawn. Pay them $1 more for dishwashing.
- You can also encourage your child to look for ways to earn money outside of the house, such as by mowing the neighbor’s lawn, shoveling snow out of driveways, or pet sitting. Brainstorm with your child to help them come up with some potential money making options.
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Part 3

Part 3 of 3:

Staying Money-Smart in High School

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Teach them how to use banking apps and websites. Your bank probably has a website where you can pay off bills and check your accounts online. Ask your bank if they support an app, then help you high schooler download and learn how to use it. Many banks offer easy ways to pay off monthly bills online, and even if your kid doesn’t have a credit card yet, having easy access to their accounts can encourage them to check up on their budget more often.
- There are also many third-party apps available to streamline the process of paying bills and setting budgets. Ask your bank if they recommend one, and make sure you check with your bank before entering any of your child’s banking into a non-affiliated app.^{[15]
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Help them open a checking account. Learning how to write checks, balance an account, etc. will lower the risk of budget shortfalls in adulthood. Even if your child won’t be using checks, it’s helpful to have a checking account in case they get a job with a direct deposit that can only pay them through this kind of account. Start as early as possible, while your child is still at home and the consequences for mistakes aren't as severe. Set up the account with your child and monitor their spending habits.^{[16]
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- Not all banks allow underage teens to have checking accounts, but it's worth calling around to find one that does. If you hit this problem, give them control of their savings account.^{[17]
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Emphasize that credit cards are borrowed money and that debit cards are automatic withdrawals from their bank account. Show your monthly statements to your child. Highlight the section on your bank account statement that itemizes debit card expenditures. If you keep a balance on your credit card, point out the information explaining how long it will take you to pay the balance off.^{[18]
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This will teach them to manage their money and their time. Seek out local businesses that are willing to work with high school schedules. Help your child fill out job applications and make good impressions on prospective employers.^{[19]
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While you shouldn't charge them rent just yet, remind them that luxuries are their responsibility. This includes expensive clothing, entertainment, and gas fill-ups. If they don't want to drive the family car, help them figure out how much they'll need to save until they can afford their own wheels. These lessons will prepare them for the responsibilities of adulthood.^{[20]
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Avoid giving your kids money frequently. Most teens know how to keep track of money, but many blow through it before the next payday. If this happens with your child, try not to give them money to tide them over. Instead, allow them to experience the consequences of their actions. Remind them that you won't always be there in the future and to use this as a teachable moment.^{[21]
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- Don’t let your child rely on you as their sole source of money because this will make them less self-sufficient and resourceful.
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Expert Q&A

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Question

How do you teach kids about budgeting?

Brian Stormont, CFP®
Certified Financial Planner
Brian Stormont is a Partner and Certified Financial Planner (CFP®) with Insight Wealth Strategies. With over ten years of experience, Brian specializes in retirement planning, investment planning, estate planning, and income taxes. He holds a BS in Finance and Marketing from the University of Denver. Brian also holds his Certified Fund Specialist (CFS), Series 7, Series 66, and Certified Financial Planner (CFP®) licenses.

Brian Stormont, CFP®

Certified Financial Planner

Expert Answer

In my household, we have an allowance system that's met through them accomplishing certain chores or getting certain goals met through school and homework. Then, they can save money, and they can start to decide how they want to spend that money. We also try to encourage them to get into the idea of charitable giving—whatever they spend, 10% of it needs to go to a local charity that they get to decide on.

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Tips

Use cash to illustrate financial lessons when your child is too young to understand how debit or credit cards work. You can also substitute pennies if you child is very young and board game money if they're middle-school age and older.

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Warnings

Use caution when making an advance on allowances. This could make them dependent on credit. It's important that they avoid spending money they have not yet earned.

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