Ask the Expert: How Do I Instill Saving and Budgeting in My Children?

Dear Ask the Expert, How Do I Instill Saving and Budgeting in My Children?

Teaching your children about budgeting early in life sets them on the path to becoming financially responsible adults. Children learn by watching what their parents do, so leading by example is important. If you practice good budgeting habits and discuss these with your children, chances are they will follow in your footsteps. Here are some practical ways to teach your children about budgeting:

• Teach them the value of money by giving them a weekly allowance for completing age-appropriate chores. This helps them learn the connection between work, money, and responsibility, and gives them the opportunity to manage their own money.   
• Explain to them the difference between needs and wants. A need is something they must have to survive. A want is something they can live without. For example, the newest toy on the market may seem like a must-have but is not needed to survive; food, however, is. 
• Show them how to create a budget. Share how you create your own budget for the household. Discuss their income (allowance, money from chores, monetary gifts).  Ask them what they want to spend their money on. Ensure that they prioritise needs in their budget.  Help them set saving goals – for a toy or game, an outing, or some other item. For older children, it might be saving towards university. Saving towards something motivates them to save consistently. Celebrate when they reach their saving goals.
• Create and label “save,” “spend,” and “give” boxes. When your child receives their allowance or gifts of money, encourage them to allocate a portion to each box. This teaches them to prioritise saving, budgeting, and practicing charity. 
• Open a savings account for your child. Take them to the bank and explain how it works. Encourage them to deposit a portion of their allowance or any cash gifts they receive. 
• Involve them in everyday financial decisions that are appropriate for their age. For example, if you are thinking about purchasing a household item, say a new fridge, discuss how you go about making that decision, things you consider before deciding to buy the fridge. Ask them what they would do. Guide them through the decision. This helps them to develop decision-making skills that they can carry through to adulthood.

Lydia R. McCollin, FCCA, FCA, is the Managing Director of LRM Consulting Services Inc.

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