Budgeting For Kids: Basic Money Management Tips

Teaching your children about budgeting at an early age can promote lifelong financial literacy. But how can you make budgeting interesting and engaging for kids?

There are several fun and accessible strategies you can use to introduce your kids to effective personal finance habits. We’ll cover some popular approaches that hook children on financial literacy.

What Is Budgeting For Kids?

Budgeting for kids isn’t very different from what adults do to manage their budgets. While children generally don’t budget for rent, retirement plans or car payments, the basic principles remain the same.

Budgeting for any age is about allocating money for your needs, wants and savings goals. Like grownups, kids need to decide how much money to save, how much to spend – and what to spend it on.

Why Kids Need To Learn About Budgeting

Budgeting is all about living within your means. Teaching kids how to budget can give them the skills and know-how they’ll need to manage debt responsibly, especially when they start receiving credit card offers.

Solid budgeting habits can help them make financially sound decisions for big-ticket item expenses, like buying a car and/or a house, and avoid overspending later in life.

How To Talk To Kids About Money Habits

There are numerous ways to teach kids financial literacy. A 2022 study from Brigham Young University suggests things like modeling good behavior, providing opportunities to gain real-world experience and talking to your kids about money.

Launching straight into a lecture about budgeting may not capture their interest. Consider starting them off with a strong foundation of understanding money and then building on that knowledge.

Kids Financial Education Lessons By Age

According to CNBC, children may be able to grasp basic money concepts early, even as early as preschool. You may want to save the lesson on compound interest for later, but there’s value in introducing a kindergartener to the value of money.

Let’s explore ideas for appropriate financial lessons for kids by key age groups, based on expert research from around the industry. Of course, you know your kids best and these are just some high-level ideas around speaking to them about money.

Up To Age 6: The Value Of Money

This may seem early, but preschoolers are often ready to understand the value of money. Introduce them to the value of different coins and bills – and make it fun. Teach them how to read price tags and reinterpret them into dollars and cents.

Ages 7 – 12: Budgeting Basics

At this point, your kids may be ready to understand the value of saving, and it may be a good time to give them more freedom with their money.

Why Saving Matters

Humans are impulsive – and that includes kids. With the right mix of modeling and guidance, they can learn how saving today can provide enough money to achieve a money goal tomorrow.

For adults, the money goal may be a down payment for a home. For kids, it may be a video game console. Use examples to show them the benefits of delaying instant gratification and focusing on long-term goals.

Managing Allowance Money And Gifts: Piggy Bank Vs. Bank Account

Children may have a few revenue streams – which can include lemonade stands, an allowance and occasional gifts when grandparents pay a visit. Talk to them about what they should do with their money. Allowing them to make choices about their money can build their decision-making skills and financial independence. Start a conversation about depositing their money into a piggy bank or a bank account.

This conversation can jump-start a discussion about opening a bank account. Talk about your bank accounts, how you use them and what they do. For example, you can talk about:

• Your checking account for short-term needs and quick access to funds
• Your primary savings account for longer-term purchases
• Your emergency fund for unexpected expenses
• Your brokerage accounts you use to target a variety of financial goals

The bank account conversation may lead to a conversation about interest and how it works. So, we’ll discuss interest next.

How Interest Works: The Basics

If you thought budgeting would be a dry topic for kids, try interest. But once you explain the magic of compound interest to grow a balance over time, you’ll likely get their attention.

Kids who have their eye on a larger purchase may respond well to saving when they know interest can help them achieve their goal sooner.

Ages 13 – 18: Establishing Budgeting Skills For Adulthood

At this point, your kids may be earning money by babysitting or through other part-time jobs. With money coming in regularly, now is the right time to have a more detailed conversation about budgeting skills. This can also cover saving and investing since those are often an integral part of a person’s budget.

Understanding Investment Principles

Consider introducing stocks, bonds, exchange-traded funds (ETFs), mutual funds and other investment vehicles. You can provide some hands-on lessons by purchasing shares of a stock for a teenager and tracking its performance with them. A dividend stock can also help them understand another way that investments might grow over time.

Saving For Higher Education

Many kids plan to continue their education after high school. Discuss the cost of higher education – and how every dollar they save now is one less dollar of student loans they’ll need.

You can also introduce some budgeting rules of thumb that will help them save for important purposes.

Using The 50/30/20 Rule

The 50/30/20 rule is a popular budgeting method that works for all ages. It ties together many financial literacy tactics, including dividing income into three categories: needs, wants and savings or paying off debts.

Your children probably won’t cover much of their necessities if any. But you can talk about needs versus wants. Encourage them to consider where saving for college or a car or nights out with friends fits into the three budget categories. You may want to start discussing the appropriate age for them to start paying for necessities, especially if they decide to stay at home.

Being Responsible With A Credit Card Or Debit Card

Teens with checking accounts may be ready for a debit card. Banks may introduce guidelines for younger clients that limit how much they can spend and where they can use debit cards. With adulthood on the horizon, now would be a good time to instill accountability.

Credit cards may be trickier than debit cards. If you want your teen to have access to a credit card, you may need to add them as an authorized user to your account. Banks typically don’t issue credit cards to minors. That means you get to see how they use the card, and you get to help build your child’s credit. Because you’re the primary account holder, though, you’ll be responsible for making the payments.

Some financial institutions offer credit cards for kids. And some even offer cash back on purchases.

Introducing Charitable Giving

Philanthropy is fair game as a part of your budgeting conversations. Consider helping your children identify causes that are important to them and adding a line item for giving in their budget. If your kids are older, it may be worth explaining that they might be able to claim deductions for supporting their favorite charities when they start paying taxes.

Use Apps To Teach Kids Budgeting Know-How

Smartphone apps are another way to introduce kids to hands-on budgeting. Some apps allow parents to schedule chores and automatically transfer allowance money to their kids.

Some apps have free versions, but you may need to use paid versions to unlock premium features.

FAQs: How To Teach Budgeting

Here are a few questions we often hear about budgeting for kids.

What is the 50/30/20 rule for kids?

The 50/30/20 rule applies to adults and kids. You just budget your money by needs, wants and savings. Adults often use “savings and other debts” for the third category, but that might not apply to minors since they don’t have debts.

How do I teach my child budgeting?

Start young, keep it simple and make it age-appropriate. Model positive behaviors, speak openly about money and provide hands-on learning opportunities. Allowances can be a good starting point.

When should I teach my kid about budgeting?

Some experts believe kids can learn about budgeting basics before first grade. You can start a simple money conversation and set milestones based on how they respond. Sometime after first grade, it may be a good idea to open a bank account for the child and teach them how to use it. Opening a bank account may even set up a future conversation about savings and interest.

How do you make a simple budget for kids?

Consider identifying their interests and needs. Help them allocate money for immediate needs and for long-term, big-ticket items like a new bike or a smartphone. You can track their progress toward their bigger goal over time.

The Bottom Line: Teaching Kids To Budget Leads To Better Financial Habits

Kids may be ready to learn budgeting basics before they’ve graduated to kindergarten. Starting the money conversation early can help make it easier for them to grasp more abstract concepts later.

Being a good financial role model means keeping track of your finances to keep your budgeting on track. Download the Rocket Money℠ app and show your kids how you budget toward your financial goals.