Budgeting

A budget is a plan for our money.  It helps us manage money more effectively. 

  Needs vs. Wants

One of the most important things kids need to know in order to effectively manage money is the difference between a need and a want. It may seem like common sense, but there are levels to needs and wants so it tends to get a little complicated. For example, shoes are a need but are Nike Air Jordans a need?  It's important that we get kids to reflect on these differences so that they can then make good money, and ultimately, good life choices. 

KidsMoneyConnexions Activity:  A fun activity to do with your kids is to go through magazines and cut out pictures of needs and wants.  Kids can glue these onto a piece of construction paper with the labels 'needs' and 'wants' at the top.  You may find that this simple little activity lends itself to a lot of great discussion.

Pay the difference:  Using the example above of the Nike Air Jordans, if your child really wants those particular shoes, offer to pay the difference between what you would normally spend on a pair of shoes and the cost of the coveted item.

  Being a Good Consumer

A consumer is someone who purchases goods and services.  Being a good consumer is being careful about how money is spent.  In other words, a good consumer spends money wisely.

There are a variety of ways to spend money wisely.  Researching before spending, using coupons, comparison shopping, waiting for sales, finding out who has what you want and asking about their experiences with it, and using the Three Money Questions:

  • Do I need it?

  • Can I afford it?

  • Is it worth it?

Teaching your kids how to be good consumers is teaching your kids the life skills of spending money wisely. 

  Registry Worksheet

Now that your kids have a handle on needs and wants and ways to spend money wisely, it's time to keep track of their income and expenses.  Use the Registry worksheet to teach them how to record their income and expenses and keep a running balance.  If you did the Income and Expenses Tracking Worksheet, from the Allowance page, you're already familiar with keeping track.

While your kids keep track they'll be learning new vocabulary such as income, expense, and balance.   As you use this new vocabulary, kids will become more comfortable with it.  Knowing and understanding 'money' vocabulary is an important step towards financial literacy.

  Creating a Budget

If you want to go to the next step with your child and create a budget, you'll need the Registry worksheet with one month's worth of data along with some colored pencils.   Color-code all the same type of items in the registry.  For example, if your child spends money on snack-type foods, then highlight all those items with the same color.  Add up the amounts in that 'snack' category.  That's about how much your child can expect to spend each month in that category, although at this age, this amount can vary greatly.  Do that with all the color-coded categories then transfer the data to the My Budget worksheet

To underscore how little amounts can add up, choose one of the expense categories and multiply by 12 months.  It's usually an eye-opening experience to see how much just two trips a week to a burger joint can cost over the course of a year!  Click here for a sample My Budget worksheet.

Now analyze their budget.  How much are they spending in each category?  Are there areas where money can be saved?  Is it possible to set up some personal financial goals with the money left over?

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