In a previous blog post dated March 27, 2023, Teaching Young Children to Invest, we discussed how parents can teach their children to invest. However, before your children start investing, it's important that they have a solid foundation in budgeting and saving. Learning how to budget and save will help them develop the discipline and financial awareness necessary for successful investing. In this blog post, we will discuss some practical tips for parents to teach their young children how to do a budget.
1. Start with the basics
Explain to your children what money is and how it is earned. Tell them that money is limited, and we need to use it wisely to get what we want. You can use examples like buying one toy from a longer wish list to make it easy to understand.
2. Set Goals
Ask your children what they want to buy or save for and help them set realistic goals. Using a “52-week savings chart” is a fun and easy way to track their progress and motivate them to save more . For example, start with $1 the first week and add an extra dollar each week. Therefore, in week one you save $1, week two, you save $2, week three, you save $3, and so on until you get to $52. If your child follows this simple money-saving chart, he or she will save $1,378 in just a year.
3. Involve them in budgeting decisions
Involving your children in budgeting decisions can help them understand the value of money. For example, when you are shopping for groceries, let your children help you make a shopping list and compare prices. You can also ask them to choose between two options of the same product with different prices to teach them about the concept of value.
4. Give them an allowance
Giving your children an allowance can be a great way to teach them about budgeting. Set a weekly or monthly allowance and encourage them to budget their money wisely. Help them create a budget plan that includes their expenses, savings, and goals.
5. Encourage saving
Teach your children to save a percentage of their allowance for their goals, such as a new toy or a trip to a theme park. For young adult children, you can also open a tax-free savings account (TFSA) or the new First Home Savings Account (FHSA) to help them deposit their savings regularly.
6. Be a good role model
As a parent, you are the biggest influence on your children. If you want them to learn good budgeting habits, you need to be a good role model. Show them how you budget your money and explain how you prioritize your expenses and savings.
It's important to remember that teaching your children about budgeting and saving is an ongoing process. Regularly check in with them, review their goals, and adjust their plan as needed. By instilling good financial habits early on, you are setting your children up for a lifetime of financial success.