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Marriage and Money

Financial management 101: Teaching kids how to budget

Learning how to budget is a child's first step towards financial independence when they are older. Managing money is more than finances; it is the ability to work towards a bigger picture.

When you think of freedom, you probably think political and religious freedom. But what about your financial independence? When your financial plan is in good order, you have more options in just about every aspect of your life, from cereals to colleges, and you can afford to be more deliberate about your choices.

Ready to claim your financial independence? First, let's talk strategy. Just like learning to ride a bike or earning a college degree, it's not easy to develop new financial planning skills, but it is worthwhile. Be prepared for a little discomfort. That's a normal symptom of any major change.

As a society, we face many conflicting cultural messages about money. It is sometimes implied that people with money are selfish and miserly, or that it is saintly to be poor. Conversely, the media portrays out-of-control spending as something desirable, encouraging us to live “like a rock star.” How many new cars, vacations, shoes or video games does it take to be happy? None. It takes shared experiences to create happiness, not things.

To counteract these emotional and societal conflicts, communicate clearly with your children about money and how to budget. Be transparent about the dilemmas you face in money management. Hiding behind “we can't afford it” instead of opening a conversation about money and values leaves your children vulnerable to cultural influences. Consistency is essential. If you spend freely on things important to you, and say you can't afford things important to them, kids will notice. Worse yet, they may stop listening to you about other value-related issues.

When teaching kids about money and how to budget, you teach them about priorities and choices. It's important to recognize that money is not just about finances, it's also about emotions and values. Growing up, we all received mixed messages about money and we are influenced by those messages throughout our lifetimes. We unconsciously pass these messages to our children, often leaving them unprepared to manage their finances effectively. The more we become aware of our feelings and how they impact our financial management, the better we can educate our children.

Ron Lieber gives extensive advice on teaching kids about money in his book, “The Opposite of Spoiled: Raising Children Who Are Grounded, Generous and Smart About Money.” His points include:

  • Money is emotional, not rational.
  • Understand the differences between desire, value and quality.
  • Spend thoughtfully. Spend mindfully.
  • Recognize cultural prejudices and societal norms.
  • Life is full of painful ethical conflicts.

One of the most helpful and practical ways to teach children how to budget is to provide real life experience about the differences between wants and needs. For example, you may want to give your kids an allowance that covers only a percentage of their wants. Or help them prepare a budget for back-to-school shopping. This will encourage them to be more thoughtful; to save and budget to pay for items in their want category; and to cut back on impulsive spending.

In this scenario, you cover your kids' basic needs of food, shelter, medical care and a modest wardrobe and allow them the freedom to make their own financial management decisions with their allowance money. Of course, you retain veto rights for purchases that stray from your values. Because you subsidize only part of what they want, kids learn how to budget and prioritize their spending. It also teaches children to develop work ethic; understand the real value of their earnings; and enjoy the rewards of goal achievement.

Like other aspects of parenting, teaching kids how to budget is important work. By providing true-to-life guidance and practical learning experiences about money and values, you can equip your children with financial management good sense on which to build a strong future.



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All Learning Center articles are general summaries that can be used when considering your financial future at various life stages. The information presented is for educational purposes and is meant to supplement other information specific to your situation. It is not intended as investment advice and does not necessarily represent the opinion of Protective or its subsidiaries.

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