Budgeting. It’s a skill that’ll put your kids in control of their money and help set them up for a financially healthy adulthood. And as money habits are set by the age of seven, the sooner your kids learn to budget, the better.
The good news is, teaching your kids about budgeting doesn’t have to be dull. There are lots of fun ways to help them learn. Keep reading for tips on explaining to children how to budget, games and activities to practice budgeting, and more.
Related: Financial literacy for kids
What is budgeting?
Budgeting is a fancy word for money planning. A budget is a plan that helps you track every dollar you have coming in (your income) and every dollar going out (your expenses).
When you budget—whether it’s every week, month, or for a special event—you’re in control of your finances. Basically, you’re telling your money where to go. Without a budget, you may find yourself wondering where it went.
Why it's important to teach your kids budgeting
Teaching your kids about budgeting puts them in control of their money from a young age. It helps them understand money is not unlimited. And because of that, they need to make choices about how they spend and save based on what they have.
Budgeting is a valuable skill to learn young, before juggling household bills and mortgage repayments on a salary as an adult. Kids who budget are less likely to land themselves in debt later in life.
“Budgeting is an essential skill kids will use throughout their lives. It’s not just about money. Budgeting also introduces life lessons like patience, planning ahead, smart decision-making and sharing,” explains Beth Zemble, GoHenry’s VP of Education. “By teaching your kids how to budget for savings, needs and wants from an early age, you’re setting them up for good financial behaviors later in life.”
How to explain budgeting simply to kids
The simplest way to explain budgeting to your child is a plan that helps them get more from their money. A budget will show them exactly what they have available to spend and help them reach savings goals sooner.
If your child struggles to make their allowance last all week, for example, discuss how creating a budget will help them ensure they have enough to cover their needs and wants. And means they won’t run out of money unexpectedly.
Adults have to budget for the same reason, you could say. Even the president has to create a budget for the government and submit it to Congress every year.
Your kids might find the idea of budgeting easier to grasp if you show rather than tell.
Show your kids how you budget
To show your kids how budgeting works, have them sit alongside you when you next sit down to balance yours and go through it together. Or use a bank statement to show them your monthly outgoings.
Explain how you need to make sure you have enough money for household bills like heating and lighting. But you also need to cover essentials like food and gas.
Discuss how much is left over for spending on meals out or day trips. Then explore how much you can set aside each month for a long-term savings goal, like a new car or a vacation.
You might want to talk with your kids about what happens when you don’t have enough in your budget for essentials too. It’ll be an opportunity to mention debt and how interest means borrowing can cost you more.
But as kids learn best by doing, here are some other ways to help them learn.
Ways to teach kids about budgeting
It can be hard to find ways to teach your kids about money. But as a lot of children earn an allowance from as young as six, it’s never too soon to teach your kids to budget. Even children as young as three can grasp the basics.
Candy shopping budget
Give a young child a set amount of money to spend on candy. Let them work out whether to blow their budget on one large chocolate bar or buy several smaller pieces of candy instead.
Play budgeting games
There are lots of budgeting games you can use to teach your kids about budgeting. A fun one is to use beads or counters. Say the beads represent income, then label jars or bowls as different expenses or outgoings. Keep it simple for younger kids—‘rent’, ‘food’, ‘savings’ and ‘fun money’.
Make them put the right amount into jars for needs, then savings. Then let them add the remainder into the fun money jar. For older children use it as an opportunity to teach them the 50-30-20 rule. (50% needs, 30% wants and 20% savings.)
To teach your kids how to change their budget add something unexpected. Put some scenarios on pieces of paper—a bonus at work, job loss, or buying a car—and get your child to draw one. Help them see where to cut back and what to do with an unexpected windfall.
Manage the grocery shopping budget
Put your child in charge of the weekly grocery shopping budget. Help them make a list of food you need and price-check it in the supermarket. Get them to add it all up and see if the total is within budget.
Budget for a special event
If you have a family day out coming up, put your child in control of the budget. Check they’ve included the cost of parking, gas and meals.
Or if you’re saving for a vacation, get them involved. Tell them how much you’ve saved and what else you need to budget for. See if they can come up with ways to make some extra money to help reach your savings goal.
Manage an allowance
An allowance is a great way to teach kids about budgeting. Each week they’ll have a set amount of money to work with. They decide where it goes and how best to make it last. For older kids, a monthly allowance will help them learn to stretch their budget for longer periods.
If you decide to pay your kids for doing extra chores, they’ll be able to boost their earnings. It’ll help them grasp the relationship between work and money too.
Give your kids three envelopes named Spend, Save, and Give. You could get your kids to decorate the envelopes any way they like. Every time they get their allowance, get them to divide it between the envelopes.
Let’s say their allowance is five dollars per week. On the day they get paid they put two dollars in the Spend envelope, two in Save, and a dollar in the one marked Give. It’s basic but it works—even for six-year-olds.
Younger kids may get more out of dividing their money between jars. It’s the same principle, it just means they can actually see their coins and dollar bills mount up. So they’ll always know how much they have.
Make it a simple system. A jar for making cheaper purchases, like candy or small toys. Plus another, bigger jar, for treats they can’t afford right now, such as bigger toys or games.
Use a budget worksheet or template
Your kids may roll their eyes at this one. But for some, having a way to organize their figures into ready-made columns seriously appeals. It doesn’t have to be a complicated online spreadsheet with formulae (although tech-savvy teens who are good at math may enjoy this). A simple template you can download and help your child fill in is all you need.
Introduce them to a kids’ money-management app
GoHenry’s in-app Money Missions tool is a great way for your kids to learn about budgeting. There are videos, bite-sized lessons, interactive games and quizzes for every age. As well as budgeting they’ll learn other useful money skills like saving, investing and spending wisely.
7 tips to help kids create their first budget
Budgeting sounds complicated but it’s actually pretty straightforward. Here are some tips to help your kids make their first budget. And a video you could watch together before you get started.
1. Work out their income
The first step is to get your child to work out how much money they have coming in over a certain period, like a week or month. Explain this is called ‘income’ and, depending on their age, might include:
Money earned for doing chores
Earnings from a part-time job or side-hustle
Money from the Tooth Fairy
Gifts from relatives.
Help them add this up and write down the total figure.
2. Identify their fixed costs
The next step is to help them work out their expenses. Tweens and Teens may not have rent or household bills to pay, but they might have a Spotify or Netflix subscription. Or a monthly mobile phone payment.
You want to get your kids to understand that they may have fixed costs, for which they know the date and amount in advance. And these need to be added up and deducted from their income.
Get them to write down the total amount of fixed expenses they have.
3. Decide their needs vs wants
To help your kids work out their other expenses, discuss the difference between needs and wants. You could use your weekly grocery shop as an example. Explain how your grocery budget may always include staples such as milk and bread (needs) but only occasionally include a special treat such as your kid's favorite snack (want).
Children of all ages can understand the difference between needs, like shelter and clothing, and wants, like a gym membership, vacation or streaming subscription.
Once your child has calculated what they need for the upcoming period, they add this to their expenses total.
4. Allocate savings and donations
Explain that the general rule is to save at least 10% of your income. The amount your child wants to contribute to their savings should also be added to their expenses for the upcoming period.
If your child is working to meet a specific savings goal, they may want to increase the savings percentage to reach their goal quicker. Guiding your child to save up for their own goal will help teach them a valuable life skill—how to delay gratification.
5. Add donations to charity
If your family chooses to give to charity, 10% of income is a good baseline. Developing this practice early can help your children grow into caring, empathetic adults. The amount your child gives to charity goes into the expenses column of their budget too.
6. Help them figure out what’s left to spend on wants
To work out how much money your child will have left to spend, they simply deduct their total expenses from their total income.
Then, throughout the budgeting period, remind them to track every transaction they make.
7. Help them work toward long term savings goals
When your child has developed a basic budget, challenge them to stick to it for a few months until they reach their short-term savings goal. Then you can revisit and discuss any changes they might want to make.
Maybe you start working with them on some longer-term goals like a car or college fund. By developing the discipline to save at a young age, your children can set themselves up for future success.
How can GoHenry help your child learn to budget?
A prepaid debit card and app for 6-18-year-olds, GoHenry can help your child learn budgeting skills that’ll set them up for life. As well as teaching them through games and quizzes on Money Missions, it comes with a companion app for parents.
You can set up weekly transfers—then help your kids plan how to spend it wisely. You can also track their progress, set spending limits and get real-time notifications every time they make a purchase. Your kids gain smart money skills by using their card and you get peace of mind.