iVillage: How to Budget

How to Budget: Tips for Helping Your Child Learn to Budget

Learning how to budget is no simple task. It takes quite a bit of trial and error to find a budgeting approach that works for you. If you are a parent, helping your child learn how to budget is one of the best gifts you can give them. Let them make small mistakes now to avoid making big mistakes later.

How to Budget Video Transcript:

65% of teenagers learn money management from their parents.  However, over a quarter of college students don’t save money on a monthly basis. Teaching teens to live within their means is a balance between helping them understand how much it costs to live, what resources they have available today as well as what they might have available in the future.

Set Boundaries

You don’t need me to tell you that setting boundaries with teenagers is important, and money is no different. If you give your teen an allowance and they blow it all in one day, don’t just give them more cash. Just say no.

This also applies with big purchases. When I was 16, my parents helped me buy a car, and I desperately wanted a sunroof. My parents patiently explained to me that sunroofs cost extra, and if I really wanted one I’d have to pay for it myself. That lesson stuck with me, and I’ve never owned a car with a sunroof. Although, I do still kind of want one.

Let Them Shop

If you’re looking for a practical exercise that your teen will really enjoy, consider coming up with a shopping budget together. Next time your teen needs new clothes, do an inventory of your teen’s closet together, and come up with an exact list of what your teen needs. Maybe it’s three shirts, one pair of jeans and a pair of shoes. And then give them an exact budget for those items–maybe it’s $150. Then, turn them lose at the mall. Your teen’s going to have a blast, and at the same time learn the necessity of comparison shopping, the beauty of buying things on sale, and how much it actually costs to buy these items. Again, set boundaries. If your teen comes home with one $150 pair of jeans, don’t just fork over more cash for the remaining items. Sit down and come up with a solution together.

Keep Track

The best ways for teens to learn the ins and outs of money management is to teach them bookkeeping, the old fashioned way. Just like we all had to learn long division before we got to use a calculator, teaching your teen to track their income and expenses now will pay off big later. Let them choose a cool notebook and help them set up a system to record any money they earn–whether it’s babysitting money, allowance, gifts–and every dollar they spend. Help them understand how much things cost in terms of how long it takes to be able to earn the money to afford them. If it takes 6 hours of babysitting to buy one new video game, teens will quickly learn the value of a dollar–and of hard work.

Income is a Good Thing

Teaching teens to live within their means can be tough on a parent. Of course you want to give your child everything they want. But instead of just giving them anything they want, consider supporting them in finding new ways to earn income. Maybe that means getting an after school job or starting their own business mowing lawns on the weekend. There’s nothing wrong with letting your teen spend money. As long as they learn what it takes to earn the money to afford what it is they want.

Compounding Interest

If your teen is doing a good job saving, it’s time to take a sigh of relief. But it’s not time to stop teaching. Take your teen to a local bank and help them open a high yield savings account. Ask the bank representative to teach your teen about compounding interest. Or do a quick online search yourself to find calculators that can show your teen how their savings will grow overtime. Understanding compounding interest can serve as extra motivation for your teen to save now instead of spend.

Start Slow

Money can be a tough topic, so don’t be afraid to work your way up to it. If the conversation feels difficult, why not start with something fun that will indirectly teach your teen about money? Schedule a family game night, play the board game Life, and see if any conversations come up organically. Remember, you don’t have to have all the answers. You just need to get them talking.

From iVillage.com‘s “The Money Talk”