Budgeting

From preschoolers to teenagers, learning about money is an important part of every kid's life. And you're in the best position to be both counselor and coach. Showing young people how to create a budget is critical to gaining financial insight and independence. You can help them to:

• See exactly how much money is coming in and going out
• Plan for, save toward, and reach financial goals
• Avoid overspending
• Learn a critical skill that’s relevant throughout life

Rules of the road for every age.

Need a hand getting started? Here are some guidelines to make teaching money skills easy for you and rewarding for everyone in your family:

• Make money conversations a part of everyday life. On a trip to the store or while planning a family vacation, talk about how you budget and save.
• Set a good example. Friends and media have a lot of influence on kids, but when it comes right down to it, what they see you do is probably the most important influence of all.
• Use age-appropriate activities. Consider your child's age and maturity.
• Talk to girls and boys in the same way. They need to learn the same lessons about spending, saving, borrowing, and investing.
• Try to be open about family finances. Find areas where you'd be comfortable involving kids in family financial decisions.

You don't have to be a financial whiz to teach kids about money. The lessons of your own life—your values and what shaped your personal approach to finances—can be a great foundation for helping a young person make good financial decisions.

Getting started by setting tangible goals.

Setting goals is as important for kids as it is for adults. It will give them motivation to set priorities and make smart choices.

To help them get started:

Talk about what your kids want from their money: a video game, a special trip, a car—or even to start saving for college. Whether your kids' goals are big or small, short-term or long-term, they need to be tangible to be real. Once kids have a clear idea of what they want, they can more readily understand what they need to do to get it—and will be more willing to plan ahead.

Here are some tips:

• Have your kids write down both their short- and long-term goals.
   
• Attach a price tag to each.
   
• Discuss where the money will come from and how long it might take to reach each goal.

Money sources: Where the money's coming from—and where it's going.

For a budget to be real, you need to have income. For kids, money sources might include a part-time job, an allowance, or gifts. Talk about the sources of income they currently have and other ways that they might earn money.

Keeping track of expenses.

It's important for kids to understand not only where the money is coming from, but also where it's going. For starters, have your kids track their spending by writing down every purchase for a week or two. As you help them allocate their income to cover expenses, be sure to discuss:

• Spending decisions and tradeoffs
   
• Keeping track of where the money is going
   
• Making changes to stay on budget

Sticking to a budget is an important habit. If your kids start early, when income and expenses are still simple, they'll be comfortable with the process when they're older and their finances are more complex. You can start with these important topics:

• Budgeting
   
• Saving
   
• Spending wisely
   
• Investing
   
• Giving back

Once you've discussed goals, income sources and expenses, putting together a budget is a simple process. Have your kids:

• Write down expenses. Include both needs and wants. Include savings as an expense. 
   
• Add up income. Consider all sources, like allowance, gifts, and jobs.
   
• Do the math. If there’s a shortfall, find ways to cut expenses or earn more money.

Creating a budget with your child can be an eye-opening and rewarding experience. Use the to put priorities into action and allocate expenses. It can offer some great lessons in making tradeoffs.