Each month we will continue to dedicate an article to helping parents raise financially responsible children. Here are links to some previous posts: ; Kids & Money – FAQ and Kids & Money – What is Your Child’s Financial Personality Type
Nobody likes budgeting. It ranks right up there with root canals, dieting and cleaning out gutters. If we all had it our way, we’d have so much positive cash flow each month we wouldn’t need to have a budget. But for most, this isn’t reality.
According to most financial experts, the three primary reasons budgets fail are:
- Lack of commitment and self-discipline
- Setting unrealistic goals
- A serious emergency (losing a job, divorce, illness) that destroys any set budget
As an adult, I’m sure you can relate to these all too well. Reasons number one and two can be fixed. The third reason can at least be minimized with substantial savings to protect your budget. Your child is a newcomer to this, and we have an opportunity to help them be better than we ever were, and start earlier than we ever did.
Why is a Budget Important?
Your children must understand why a budget is so important, especially as they are learning the habits of saving. Having a budget in place allows you to confidently and consistently pay for what you need and save up for what you want. This is about the simplest way to think of the fundamental reason for why you should have a budget, and also to be able to explain it to your children.
Setting Financial Goals
What goals does your child have? What financial goals do you want to encourage them to focus on? For most families, there are three main “buckets” you would like your kids to think about: spending, saving, and giving. Goals they might have for spending would be activities in the near future with friends, such as going to the movies, birthday gift for a friend, or a new shirt. “Saving” would be for more expensive, mid- and long-term items such as a summer camp your child wants to attend, a new bike, or even a car. My 9-year old is now saving up for the latest American Girl doll which is over $100! This will take weeks, given her $9 per week allowance (matches her age)…especially given the fact there will be other items along the way she needs money for. My 5-year old son now saves for new Lego sets regularly with his $5 weekly allowance.
- For now, set a time with your child to discuss what a budget is and why it is important. If you have one, even if you need to blow off the dust that has accumulated on it, share it with them. Let them see how you use a budget to run the household, pay bills, save for vacations, and pay for all of the great things they get to enjoy.
- Then, discuss with them their financial goals. Create a list of things they want to save for, and what regular weekly expenses they must put into their own budget, such as lunch money, school field trips, treats at the store, or school supplies.