Budgeting for Kids: How To Teach It and Why It Matters

Here’s how children can learn to balance spending and saving

A young girl talks with her father.
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With a solid understanding of budgeting early on in life, kids are more likely to succeed financially as adults. Budgeting is an important skill to learn because it can help you achieve savings for long-term goals as well as prevent you from spiraling into debt. 

Here, we’ll show you how to teach kids to create a plan for spending and saving so they can reach their goals and stay on financial track throughout their life.

Key Takeaways

  • Budgeting teaches critical savings and spending skills that kids can use to achieve financial health in adulthood. 
  • Help kids learn how to identify financial goals and develop a specific plan for achieving them. 
  • You can use real-life examples to teach kids about budgeting so they can relate to the lessons.

Why Teaching Budgeting Matters

The lessons one learns within their home as a child are a key source to financial education. According to recent research, the financial knowledge and principles children retain as they transition into teenage years and adulthood originate primarily from their parents.

And what’s more, according to a study from the Journal of Consumer Affairs, children are developmentally capable of saving by 5 or 6 years old. But the sooner they start learning the basics of concepts like saving and budgeting, the better.

One of the most common causes of financial issues as an adult is overspending.

By teaching kids the basics of money and how to control money through a budget, you’ll be preparing them for the financial realities of adulthood.

How To Start the Conversation About Budgeting

You can explain budgeting to kids as creating a plan that helps people make the best use of their money. Omar Ruiz, a marriage and family therapist with 10-plus years of counseling experience, suggests using food to help introduce and demonstrate the importance of budgeting to young children. Food is a good example because it’s a product they consume every day and you need money to buy it.

“You can explain that budgeting allows you to know how much food you can purchase,” Ruiz told The Balance in an email. “State that if you already have a certain type of food at home, budgeting can allow you to use the extra money towards something else you need or want.”

To get your child comfortable with the idea of budgeting, you might want to try using the bucket system, certified financial education instructor Kari Lorz told The Balance in an email. With this system, you get three mugs or mason jars to the child and dedicate one for spending, one for saving, and one for giving.

As they earn their own money, perhaps through an allowance system or even from the tooth fairy, they can place their money into one of these buckets. “They’ll be able to see their money grow and still understand that money is for three distinct things,” Lorz said. 

Keep in mind that each child (and family) is different and has its own financial situation. So the methods of teaching that work for one family may not be the best for another. 

Define Wants vs. Needs

Help your child understand the difference between what they want and what they need so that they can prioritize how they spend their money.

“It’s essential your child knows that wants are least important, compared to needs,” said Courtney Hale, founder of Super Money Kids. “That’s why they should put their money toward their needs first and then their wants.” 

Consider using the example of comparing clothes as needs versus toys as wants, Ruiz suggests. You can explain that your child needs to wear clothes to stay warm and protected from the weather. Even though they don’t need toys to survive, they want toys for fun. 

Detail the Budget Progress

To create a budget with your child, the first step is to focus on explaining income. 

Since younger kids typically don’t have a regular income, you can use your own income or a hypothetical example of income to show them how income works. You can walk them through your expenses, and show them how you subtract necessary expenses from your income to figure out how much you have for other things like unnecessary expenses and saving.

Depending on their age, they may have income from their allowance, part-time job earnings, gifts from relatives, or money from the Tooth Fairy. You can also use fake money to illustrate income. 

Help them add up their income for a certain period of time, like a week or a month. Then, ask them to write down and calculate all of their expenses, which should include needs and wants, for that time. 

Next, have your child subtract their expenses from their income. If the number is positive, congratulate your child and explain they have enough money to meet their needs and wants. If it’s negative, explain that they will need to earn more income to meet their goals, or that they need to cut expenses. 

Setting (and Adjusting) Budget Goals

Encourage your child to identify a goal that costs money like buying a new video game or going to an amusement park. Then, help them create a chart that keeps track of the money your child earns.

Every time they make money, allow them to physically deposit it, say, into a piggy bank. Ask your child to help you update the chart to keep track of how much money the piggy bank contains. Work with them to design a plan on how much they need to earn each day or week to achieve their goal. 

Explain to your child that their income and goals will change as they get older. They might have different needs, wants, and priorities and they will need to keep track of them. For example, they may get extra money from family members for their birthday or lose their piggy bank. 

“Good goals must have reasonable deadlines and consider the age of the child. For an elementary-aged student, the goal should be accomplished in less than one month,” said Hale. 

Try to align the financial goals you're using for budgeting lessons with the child's passions. For example, if a child is interested in art, a good goal may be to save $20 in two weeks for a 100-piece art set.

The Bottom Line

While teaching children about budgeting takes time, effort, and creativity, it’s definitely worthwhile. If your child is well-versed in how to create a budget and stick to it, they’ll be able to foster other healthy financial habits and avoid common issues like overspending and debt. This can set them up for a successful future. 

Frequently Asked Questions (FAQs)

What is a good age for kids to learn about budgeting?

You can start teaching children basic budgeting skills at an early age. Each child will have a different ideal age for when they’re most receptive. While kids should learn about money at an early age, Kari Lorz, certified financial educator, recommends about 8 years old as an ideal age to go into more detail about the concept of budgeting. 

What should a kid’s budget look like?

A kid’s budget can be a simple three-column sheet with the words “goal, savings, and cost.” On this sheet, your child may list their goal, when they would like to achieve it, the amount of money they earn in that time, the amount they will save, and the cost of the goal. This way, they can determine if they are on track to reach their goal or what changes they can make to achieve it.

Article Sources

  1. Journal of Financial Counseling and Planning. “Teaching Children About Money: Prospective Parenting Ideas From Undergraduate Students,” Page 259. 

  2. Wiley Online Library. “A Developmental Perspective on Children's Economic Agency.” Friedline, 2015, Journal of Consumer Affairs.

  3. Harvard University. “Financial Literacy.”