A Plan for Success
Developing and sticking to a budget.
There is nothing more important than a budget when it comes to money management. Help your child understand how to develop a balanced, realistic budget.
Help your child to create his or her own budget.
- Ask your child to write down all the ways he or she receives money. Explain that this is income.
- Ask your child to write down all the things he or she typically buys. Explain that these are expenses.
- Have your child choose something that he or she would need to save money to buy, then build a longer-term budget around this item.
Involve your child in budgeting for a family vacation.
- Discuss the expenses of the vacation, such as airfare, gas, lodging, food and recreation.
- Discuss the family's plan of saving money for this vacation, including how much will be saved from each paycheck and when the goal will be met.
Help your child understand income.
Children get excited with money, but don't always know why they get it and how to use it. For example, many children receive an allowance, but don't understand that this is their income and that it's based on many factors.
Talk with your child about your own income and how you earn it. Let your child know that an allowance is a form of income. Just as different factors affect your income, they also affect your child's income. These factors include:
- Age - The age of your child often determines allowance amount. Explain to your child that this is similar to how long a person stays at a company and along the way gains experience and expertise that is then valued at a higher amount.
- Purpose of Allowance - Just as we get paid for the job we do, your child gets paid for the chores he or she performs. Discuss any opportunities for your child to earn additional income through extra chores or a job well done, relating this to overtime or bonuses in the workplace.
- Expenses - Explain to your child what expenses he or she is expected to use allowance money or "income” for, such as movies, games, and candy.
- Payday – Designate one day of the week as payday and keep this day consistent. Also discuss different forms of payment and have your child choose a preferred form.
- Save, Share, Spend - Discuss with your child how to distribute allowance among Save, Share and Spend piggy banks.
Teach your child the basics of smart spending.
There's no getting around it; we all have to spend money on things we need and want, but most of us don't have an infinite amount of money. It's important, therefore, to prioritize spending to live within our means. Help your child understand the importance of wise financial decision-making.
Next time your child wants to buy something, walk him/her through the steps of smart spending through prioritization:
- Discuss how important the item really is to your child.
- Discuss the cost of the item in a way your child will understand, such as saying that an item will cost two weeks of allowance or one week of extra chores.
- Help your child understand that once he or she spends money on this item, that money is no longer available to be spent on another item.
- Help your child comparison-shop at a few stores or online to find a better bargain.
- Finally, allow your child to make the ultimate decision of whether or not to buy the item.
Check It Out
Teach your child the fundamentals of managing a bank account.
Often banks are a person's first introduction to the financial world and the first opportunity to use good money management. If managed properly, a bank account can help open the door to other financial products we will want to use as an adult, such as a car loan or a mortgage.
The next time you sit down to pay bills, take this opportunity to teach your child important money management principles.
- Have your child help you sort your bills and discuss from which account each bill will be paid. This is a great time to explain the difference between a savings and checking account.
- Show your child where these expenses are in your family budget.
- Have your child write one of the checks or pay one of the bills online with you while talking through what a check is or how online bill pay works.
- After your bills are paid, have your child help you balance your checking account.
- A visit to the bank to deposit any remaining money in a savings account would be an excellent field trip to end this activity.
Pay it Forward
Emphasize the importance of giving to others.
Knowing how to spend and save wisely is important, but it is also important to understand our responsibility to help others. This value is best learned at a young age.
Your child will be much more interested in sharing his or her money if the philanthropic recipient is an organization that promotes one of your child's interests.
- Determine what cause/s your child is interested in, such as pets, other cultures, wildlife, music, dance or your church.
- Use this interest to open the discussion of giving.
- Help your child get involved in volunteering for a local organization that aligns with his or her interest.
- Talk with your child about putting money aside to support this interest each time they are paid.
- Explain to your child how this donation helps the cause and its recipients
Understanding barter and trade.
Barter and trade were the first form of currency. Just because we use paper and coins today doesn't mean we no longer need barter and trade. Knowing how to be a skillful negotiator will help your child in many areas of their life.
This game with your children or your child and his and her friend:
- Tell them they must each build a tower.
- Give Popsicle sticks to one child and glue to the other.
- Let them work out how to trade for the resources they need (you can help with ideas).
Turn choosing chores into a fun and engaging activity.
- Write down each family chore on a separate note card.
- Deal out the cards evenly to your family.
- Allow family members to trade chores.
Paying Uncle Sam
Teach your child about taxes.
Taxes can be confusing and often frustrating but they are a necessary part of our economy. Help your child understand the importance of taxes and the roles they play in our economy and day-to-day living.
Play a game next time you are driving with your child by asking the questions below. Then explain that some things are so big and important that everyone must help pay for them.
- Who pays for this road to be paved?
- Who pays for that school to be open?
- Who pays for that police officer to keep us safe?
- Who pays for that firefighter to help put out fires?
Consider taking a small amount of taxes out of your child's allowance. Explain that this is part of being a citizen and these taxes pay for important things.
- You can put this amount in a savings account or use it to help pay for a family trip.
- Putting these "taxes” towards something your child views as important will help to instill the lesson.
Give Me Some Credit
Help your child understand the importance of borrowing responsibly.
People of all ages borrow. Some borrow toys, some borrow books and others borrow money. In all of these cases, responsible borrowing is important. Help your child learn how to borrow responsibly early in life.
There is a good chance your child has seen you use your credit card and your debit card, but chances are he or she doesn't understand the difference. In fact many young adults don't even know the difference.
- Pull one debit card and one credit card from your wallet or purse.
- Ask your child to tell you which is the debit and which is credit.
Whether they get it right or wrong show them all the physical similarities.
- Same size, shape, your name, 16 numbers, black strip on back, image, bank logo, etc.
Now ask them if they know the difference between the two cards.
- Debit Card: Even though this looks like a credit card it's simply access to your own money. If you use this at a store or ATM it takes money straight from your bank account. This is your money.
- Credit Card: This card allows you to borrow money. Each time you use this card you are borrowing money from a bank or other institution. When you borrow you must pay it back - with interest!
If your child asks for something he or she cannot afford and would typically save for, consider lending your child the money as a way to teach responsible borrowing.
- Discuss the importance of paying you back on a set timeline.
- Discuss the interest you will charge him/her. Make it easy by adding a set amount to what they borrow.
- Discuss what will happen if he or she doesn't pay you back on time such as an additional monetary fee or the inability to borrow in the future.
- Show your child how these principles are the same for adults when they borrow money.
Putting Your Money to Work
Teach your child the power of compounding interest.
We work hard for our money, so why not let our money work for us? The concept of compounding interest can be fascinating to children and can get them excited about saving their money.
Nature is a great way to explain the power of compounding.
- Explain to your child that if someone gave you one seed and you planted it and cared for it, you could get 50 seeds from one plant.
- If you then take those 50 seeds and plant each of them and care for them, you could get 1,000 seeds.
- Continue the examples to demonstrate how quickly the numbers become astronomical. Relate this to compound interest on saved money.
Show your child how compounding interest works using the rule of 72 (72 divided by the rate of return on your investment equals how often your investment will double).
- Example: 72 ÷ 8% interest = 9 years, meaning that every nine years, if you don't add to or subtract from it, your money will double.
Show your child how much $100 invested now can become with 8% growth annually:
- $100 at 9 years old (for example)
- $200 at 18 years old
- $400 at 27 years old
- $800 at 36 years old
- $1,600 at 45 years old
- $3,200 at 54 years old
- $6,400 at 63 years old
- Ask them how much of this final figure would be the money he or she originally put in and how much is interest. Ask your child to imagine what would happen if he or she put more than $100 in or if they continued to add to the funds.
It Cost You How Much?
Help your child understand inflation and how it affects the costs of goods.
You may think that your child is too young to learn about inflation, but it's an important concept to understand. Make learning about inflation fun with this simple activity.
Help your child understand inflation by interviewing those around them.
- Help your child create a list of items around the house or in the community (milk, bread, movie ticket, etc.).
- Have your child interview a grandparent and ask how much these items cost when the grandparent was a young child.
- Have your child ask you the same questions.
- Then help your child research the cost of these items now.
- Explain to your child how inflation increases the cost of goods over time.