Budgeting Basics for Kids

Hi Mentors!

Today, we’re exploring the fundamentals of budgeting, a critical skill for financial literacy. Understanding how to manage money through budgeting is not just a skill for adults but a foundational lesson we can teach our children early on.

The 50/30/20 rule is a popular budgeting method that can help simplify your finances. It suggests allocating your after-tax income in the following way:

• 50% to needs (housing, food, utilities, transportation, insurance)

• 30% to wants (dining out, entertainment, travel, shopping)

• 20% to savings and debt repayment (emergency fund, retirement, extra debt payments)

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MYTHS

Unfortunately, many overlook budgeting because they believe it's too complex or time-consuming.

Myth 1: Budgeting is too complicated for kids. 
Truth: Budgeting can be simplified with tools and techniques suited for different age groups, making it an engaging learning process.

Myth 2: Kids don’t earn, so they don’t need to budget. 
Truth: Understanding budgeting early helps children manage any amount of money more wisely, be it an allowance or gift money.

Myth 3: Budgeting takes all the fun out of spending. 
Truth: On the contrary, budgeting teaches children the value of money and planned spending, which can make purchasing decisions more rewarding.

STORYTIME

Leo's Smart Spending Plan

In Stamford, Connecticut, young Leo received a weekly coin from his grandparents. Eager to use his money wisely, his mother, Sue, helped him set up a budgeting game with three jars labeled: Save, Spend, and Share. Leo decorated each jar with colorful stickers—stars for Save, hearts for Spend, and smiles for Share.

Each week, Leo allocated his coins: saving for a skateboard, spending on books, and sharing with the local community garden. Over time, Leo learned that investing in lasting items like books instead of snacks allowed his Spend jar to fund enriching experiences. His Save jar steadily filled, inching closer to the skateboard, while his contributions to the Share jar beautified the community garden.

When Leo finally bought his skateboard, he rode it proudly to the garden, realizing that budgeting helped him make wise, fulfilling choices. This simple game taught Leo the balance between saving for the future, spending on meaningful items, and sharing to support community projects. Through budgeting, Leo discovered the joy of managing money responsibly, benefiting both himself and those around him.

BREAK IT DOWN

Age 3-5:
Introduce simple concepts of budgeting like "saving for a treat." Use clear jars to represent different goals (e.g., a toy, charity, savings) to visualize where their money goes.

Age 6-10:
Kids can handle a basic allowance budget. Help them categorize their expenses and savings on a simple chart, showing them how to balance fun purchases with saving goals.

Age 11-14:
Introduce more detailed budgeting with actual figures. Help them set up a simple spreadsheet to track their money from chores, gifts, or small jobs, emphasizing the importance of planning for larger purchases and savings.

TIME FOR ACTION

Create a Visual Budget Tracker: Use tools like printable budget tracker (download ours below) or apps designed for kids to make tracking fun and educational.

Regular Budget Meetings: Have monthly 'family budget meetings' where your kids can discuss their spending and savings, and adjust their budgets with your guidance.

Match Their Savings: Encourage saving by offering to match whatever amount they save towards a long-term goal. This doubles their money and motivates them to save more.

Practice Makes Perfect: Use board games like Monopoly or online simulators that involve money management to practice budgeting skills in a playful context.

BONUS

Guide for Parents: Using the Mini Money Budget

Introduce your child to budgeting with our Mini Money Budget Tracker. Each week, help them log their income (like allowances) and expenses (e.g., toys) in the tracker. Show them how to adjust their balance after each transaction. Use this as a regular activity to discuss and improve their spending habits, helping them grow their savings. Celebrate their financial progress together!