Given everything you have to do as a parent or caregiver, including budgeting in financial education for children easily can slip to the back burner on your priority list. Even so, budgeting isn’t something to put on your child’s closet shelf for later. In fact, it’s one of the most basic financial skills your child should learn.
Budgeting as a Foundation
Budgeting teaches skills such as money tracking and asset allocation. Associated with these skills are additional abilities such as critical thinking—children who budget have to make decisions about their money based on information they have at a given point. Other financial skills and tasks ideally are based off the budget. For example, your child needs to know how much disposable income he has after inflexible expenses in order to decide whether he has enough money to make a non-routine investment. Thus, you have to teach budgeting before you introduce other financial concepts.
This day and age, companies don’t rely on a good handshake and CEO’s word to do business. Contracts are the norm, and executives are under pressure to decrease costs while increasing revenue. That translates to companies being fairly cutthroat about financial agreements. Budgeting is a tool that trains children to look not only at where money is going, but also at the consequences of not handling financial obligations. This makes the transition into adult financial reality easier to stomach and reduces the likelihood your child will encounter legal problems due to money.
The Spirit of Entrepreneurship
When children budget, they come to understand that a well-executed financial plan can mean more room for entertainment or other interests. A good budget also provides personal monetary stability and the ability to look ahead for the future, such as saving for a new video game that’s scheduled for release. Entrepreneurs work with the same concepts—they know, for example, that saving money by switching vendors might mean the ability to put more into product development and marketing. Children who have experience with personal budgets thus are in an excellent position to excel in business later on, having the ability to see what’s most important financially and execute new plans as needed.
Introducing the Budget Process
The fact budgeting is basic to financial management doesn’t mean every child is ready for it. It’s tough for a child to work out a budget, for example, before he really has a grasp of what numbers really mean and what the approximate or relative value of a dollar is. Kids also have to be able to do basic problem solving. When you’re confident your child has the cognitive ability to handle a simple budget, introduce budget concepts a bit at a time so your child doesn’t see the budget process as overwhelming. Be prepared to answer whatever questions he might have, such as why it’s not necessarily good to be spending 100 percent of an allowance or other income. Keep your child accountable with regular budget meetings, too. Whatever you do, don’t make money and budgeting taboo—this often happens in families where money has been problematic, but you cannot help your child solve his money dilemmas if he doesn’t feel comfortable enough to come to you.
Use bankaroo as a tool to get your kid stick to a budget by tracking his income and spending, as well as setting saving goals.