When my son, Adam, was 5 years old, he was a constant nagger. Every-time we went shopping, he would ask me to buy something for him. His argument was, since Mom chooses what to buy, he should also be given the freedom to choose what he wants to buy. Based on my previous decision to enlist my kids in their own upbringing and give them the opportunity to take control of their actions early on, I felt his argument was smart and valid, at the same time, I cannot possibly allow a 5-year-old to waste our budget on unnecessary items. It also didn’t seem like a good idea to involve him in our household budget at this point, given he thinks dad can go to the bank anytime and bring us as much money as we need!!
So like many parents, I wondered how do I teach my kid budgeting?I read many articles, and ended up making my conclusions on how to prepare my kid to make financial decisions using the following 4 basic concepts:
1. Establish the difference between needs and wants in your kid’s brain
Before introducing this concept, I honestly didn’t expect it to create all those fun conversations between me and my son. I talked to him about the difference between our needs as a family and our wants. I explained that our needs are those essential things that we cannot live without. While our wants are things that are nice to have.
We then turned the subject into a game, and that’s when the fun started. We went around the house asking what is a need and what is a want. I made a comment that while food and water are a need, specific categories like candy is a want. That started a long argument since Adam decided that chocolate is a need, in his own words “Kids can die if they eat no chocolate for 7 days, Mama!!”, he tried to keep a straight face but we both couldn’t help bursting into laughter. I then made sure we play this game every time we went shopping, so the concept sinks in slowly.
2. Teach your kids the idea behind earning
As much as it sounds simple, this is such a huge concept. There is a cost for everything in life, almost everything, even our behaviors. Just like we work to earn money, we manage our behaviors to earn the trust and respect of those around us.I decided not to give my kid an allowance for nothing in return, instead I started making him earn commissions for the chores he does around the house as well as making good behavioral decisions. I believe this will teach him about earning as well as commitment.
3. Explain the cost of opportunity
While we as parents, understand about budgets and the idea that we cannot possibly get everything we want in life; a kid has a different perspective. As long as we do not explain why we allow a child to buy certain things and refuse others, he/she would just think, it is unfair, we are just some controlling grownups.Our kids need to be part of the decision process and learn to make compromises.
When asking Adam to choose between Chocolates and Gummies, I explained that choosing one meant losing the other, it is his decision to choose which one he gets and which one he loses. I elaborated that even though he couldn’t buy all the things he wanted, he should still be happy and proud of making good choices within the limit of what he can afford.
4. Teach your kids to work for a goal
Well, I chose not to initiate this conversation.Instead, I waited for the opportunity to present itself and it did. In one of our shopping trips, I intentionally swang by the toys section with Adam and that’s when he started asking for a $30 toy.
“How much do you have left in your piggy bank?” I asked.
“$9” he said proudly.
“How much more do you need to save to reach $30?” I asked again
“Can You or Santa buy it for me?” he asked innocently
“We can ask Santa for it, but you will have to wait till next christmas or else, you and me can put a plan together to make sure you earn the remaining $21” I answered.
Either way he will have to wait to get what he wants. But teaching kids to work for a goal and wait to achieve it, accustoms their minds to the idea of delayed gratification. A good step towards raising responsible kids with great self discipline.
Once my kid started working for a goal, I realized that was just the beginning, I need to work hard and prepare for the next step, building a budget.