I’ve previously gone over the importance of instilling a sense of money in young children. The three most influential lessons I received as a child were:

1. Want is not need.
2. There is no such thing as a free lunch.
3. The best time to plant a tree was 30 years ago, the second best time is now.

However, one thing I never learned how to do was budget.

Arguably, budgeting isn’t nearly as important for you if you already save more than you spend. Not all kids will pick up on that concept, though, so budgeting can help communicate that message in a more digestible manner.

Explaining What a Budget Is

The concept of a budget might be difficult for a child to comprehend in it’s full form. The idea of emergency funds, retirement accounts, saving for future payments (insurance), etc is not exactly concrete.

So, how should you explain it? As simple as possible: A budget is a list that helps you remember how much money you have to buy things (either now or later).

The process of budgeting should also be explained in a simple way. All they need to do is write down any money they get and write down any money they spend. Arguably, this is more of a ledger since you are treating it to record not to forecast and plan, but for a young child’s purpose it will do just fine. You can give them a cheat sheet to go off of that lists what kinds of things are income and what kinds of things are expenses.

Income: Allowance, Gifts, Money for helping neighbors

Expenses: Toys, Candy, Charity

The difference between the two is how much money you have left to spend.

Sample Budget

Here is a sample budget I have created that you can use with your kid. It is an excel document, so you need a spreadsheet program to utilize it. It is very basic in nature. It’s only a few rows so that you get the jist of how basic it should be. You will probably need to extend it so that they can log multiple transactions. I’ve also included a sample underneath it.

BudgetingForKids.xls

Following Up

After you’ve explained the above budget to them, you want to make sure they keep it up to date. It should be treated like a journal or a diary.

To further ensure that they keep up to date with their budget on a weekly, if not daily, basis, you should consider giving them a weekly allowance instead of a monthly one. By increasing the frequency of income, you will give them more practice logging and reviewing.

Tools that may help: A piggy bank to store the money, a savings account for future planning, a list of charities they can choose to donate to

Any More Applicable Advice?

If you have already gone through the process of explaining budgeting to a child, what did you find was an effective method?

Do you have any improvements upon what I said or suggestions?