Our Guide to Budgeting for Kids

Parents, you want the best for your kids. You don’t want them stumbling through life, struggling financially and figuring everything out on their own, do you?

No!

That means talking to kids about money at a young age and teaching them how to manage it properly.

The Penny Hoarder conducted a survey of over 1,500 people on the topic of financial literacy and found one-third did not learn basic personal finance concepts growing up. You don’t want your kids to reach adulthood oblivious to how to earn and save money.

Among Americans who did not gain early financial literacy, 40% have no savings and 31% earn less than $50,000.

Children start developing financial habits at an early age, so don’t wait until high school to talk about money with your kids. If they’re already teens, that’s OK. There’s still plenty of opportunity to teach them how to earn money, spend smartly and save for the important stuff.

Earning, spending and saving are the three main components of budgeting. Here’s how to get your children to grasp those concepts.

Teach Your Kids That Money Doesn’t Grow on Trees

It doesn’t just magically come out of an ATM either. It’s important that kids understand how to earn a buck.

1. Treat Allowance as a Lesson in Having a Job

Allowance can be a touchy subject for parents. Some don’t believe in rewarding kids for work they ought to do as members of the household. Others just don’t have the funds to give money for chores.

But an allowance can help children make the connection that money is given in exchange for work. 

It doesn’t have to be a lot. You can start off rewarding your little ones with $1 a week for setting the table or sweeping the floor. Or you could choose to only pay your kids for chores that go above and beyond everyday household work, like mowing the lawn or washing the car.

Another way your kids can learn that working pays off is by giving them money for earning certain grades in school.

2. Encourage Entrepreneurship — or Regular Ol’ Jobs

From lemonade stands to babysitting, there are plenty of ways kids can earn their own money. Lean into their interests and use them as a way to inspire your kids to become entrepreneurs.

Caroline and Isabel Bercaw loved using bath bombs and were just 10 and 11 years old when they decided to make and sell their own at a local art fair. Less than three years later, they were approached by Target to sell their bath bombs in its stores, and Da Bomb Bath Fizzers grew into a multi-million dollar company.

Your children don’t have to turn their entrepreneurial pursuits into million-dollar businesses. Maybe they just rake leaves for neighbors or tutor other students to earn some spending money.

Once they’re old enough to legally work in your state, your teen can find part-time or seasonal work as a way to earn an income. Retail, food service and theme parks are employers that often hire teenage workers.

3. Talk to Your Child About How Different Jobs Earn Different Pay

Talking about salaries and income disparities can be an awkward conversation. But raising kids pretty much guarantees you’ll have to tackle an awkward conversation or two.

You’ll probably want to wait until your children are older, but talk to them about expected salary ranges, job growth and the various roles a person can hold when you discuss career ambitions. It’ll help establish an idea of the kind of lifestyle they’ll be able to afford in the future.

Of course, money isn’t everything, so don’t crush their dreams by saying they’ll starve if they pursue a career in the arts.

Teach Your Kids to Be Savvy Spenders

A huge part of budgeting is learning how to spend smartly. That means teaching your kids not to grab everything they like in the store.

4. Differentiate Needs From Wants.

Recognizing the difference between needs and wants is something even adults struggle with. Nevertheless, you should try to serve as a positive example and include kids in conversations about household spending.

When you’re grocery shopping, point out how buying chicken, rice and green beans is more important than getting treats like ice cream or chips. During back-to-school season, share how getting notebooks and pencils is a priority over locker decor. You might also explain why saving up for a new car for the family means you have to forgo a summer trip this year.

5. Raise Deal Seekers

Having a little money to spend might give your kids tunnel vision about buying something they want. Instead suggest ways your children can get more bang for their buck.

Point out prices in the toy aisle. Ask your child whether he’d rather get that $15 toy he noticed first or choose two similar items costing $7 each. Go over sales catalogues, and introduce the concept of couponing.

6. Let Them Make the Transactions

Kids will make a stronger connection to exchanging money for goods and services if they’re the ones actually making the exchange.

If they want to go out for ice cream, help them count out bills and coins from their piggy bank and let them hand the money over to the cashier.

As your little ones grow, get them a wallet or purse to hold their money. Place them in charge of buying lunch at school rather than adding money to their account online.

There are even ways to include your kids in the cashless economy. Companies like FamZoo, GreenLight and BusyKid offer kid-friendly debit cards. 

Some parents choose to add their teens as an authorized user of their credit cards, which establishes a credit history for them and has the potential to strengthen their credit scores. If you go this route, make sure to teach your teen about the consequences of charging what you can’t afford on credit. Use parental controls for online accounts where you have credit card information stored, such as Amazon, and regularly check your credit card purchases.

The CARD Act of 2009 restricts consumers under 21 from applying for credit cards on their own without stable income.

7. Impart Lessons About Generosity

Spending is not limited to buying things for yourself. It’s good practice to put money aside for giving, whether that’s donating to charity, tithing at church or buying gifts for others.

Giving teaches children to think beyond themselves and to develop a philanthropic spirit. Many money experts recommend teaching children to budget by splitting their money into three jars — one for spending, one for giving and one for saving, which we’ll discuss next.

Teach Your Kids to Save for the Future

Kids don’t want to wait for what they want. They want it now. Right now.

Help them learn to fight the instant gratification urge and save their money.

8. Make a Game of Saving.

Saving money isn’t the most exciting thing in the world, but you can liven it up for your kids (and yourself too).

Take a visual approach to tracking savings. Have your kid draw something that represents what she’s saving for — like a music note for concert tickets. Each time she saves money, have her shade in a portion of the image.

Turn saving money into a challenge by having your kids drop money into a jar and reward them when they fill it up. Or tap into sibling rivalry by having them compete with their brother or sister for bragging rights on who can save the most the quickest.

You can also create a game out of finding coupons or deals. Reward your kids with a portion of the savings they discovered.

9. Open a Savings Account for Your Kid

Piggy banks are great savings tools for young kids, but a savings account introduces them to the banking industry.

Whether you choose to open an account at a brick-and-mortar bank, credit union or online bank, make sure to review the monthly statements with your kid. Discuss how their money can grow with interest by keeping it in the account. Make sure to point out any account maintenance fees or limitations on withdrawals — and the consequences that come with surpassing those limitations.

10. Talk About College Early

College is one of the most expensive costs you’ll face as a parent. The upside? You have about 18 years to save up.

Involving your children in discussions about saving for college helps them become aware of the magnitude of investing in a degree. It may also open up conversations about alternatives to the ultra-expensive private universities on your kid’s top school-choice list.

Some parents have their kids contribute to the cost of college. If your teen has a part-time job, they can save a percentage of their earnings in a college fund.

Kid-Friendly Budgeting Resources

When you’re teaching kids how to budget, injecting fun along the way is a must.

Younger kids may enjoy dropping coins into a piggy bank or reading a book like “Curious George Saves His Pennies.” Several kids’ museums across the country have exhibits geared toward shopping or banking. Older kids might pick up a financial lesson from board games like The Game of Life or Monopoly. This list of money-themed presents for kids make for good gift ideas all year round.

The Federal Trade Commission has various videos and online games, and Jackson Charitable Foundation has a series of kid-friendly music videos about money that cover concepts like earning and spending.

Getting your children involved in a finance-focused organization like Junior Achievement is another way to make learning about money interesting.

The National Endowment for Financial Education’s High School Financial Planning Program has resources for parents to talk to their teens about money. 

For more advice on teaching your kids about budgeting and personal finance, check out these books:

Nicole Dow is a senior writer at The Penny Hoarder. She’s a parent who plans to teach her daughter all the things she didn’t learn about money growing up.