Teaching your children about Budgeting and Money Management
What they should know before they head off on their own
Welcome to our series about Important Financial Knowledge for College- where we help you teach your kids everything they need to know about money before going off on their own.
Today’s topic is Budgeting and Money Management, an important building block for your child’s lifelong financial success. If your child doesn’t know how to budget, track their spending, and distinguish between needs and wants, they will never be able to achieve financial success. It’s up to YOU- the parent- to make sure they know how to do it!
Creating a budget:
First off, teach your kiddo how to set up a budget that includes all sources of income (e.g., allowance, part-time jobs, scholarships) and expenses (e.g., rent, groceries, transportation). Here's an easy, step by step way to create a budget:
Step 1: List Your Income
Write down all sources of income, like allowances, salary, or any financial aid.
Step 2: Identify Expenses
Divide expenses into fixed (rent, bills) and variable (food, entertainment). Include any debts or savings goals.
Step 3: Set Limits for Each Category
Allocate specific amounts to each category based on your total income. Start with the most important expenses first- the ones that have to get paid. This includes rent, utilities, tuition, debt payments, etc. Then, divide up the remaining income between the other expenses - fun expenses, savings, investments, etc.
Step 4: Track Spending
Record what you spend in each category to see if you’re staying within your limits.
Step 5: Adjust as Needed
If you’re overspending, look for areas to cut back, or adjust your budget based on changing income or expenses.
Tracking your spending:
Teach your child to keep track of what they are spending to make sure they are spending within their means, and sticking to their budget. They can use tools like spreadsheets, or budgeting apps.
Have you tried Crew?
Crew can be a great tool for tracking spending! Users can set up alerts for every time they spend money on their debit card or any time a payment gets made, and easily view transaction history within the app. It’s great for children, teenagers, and adults alike! Download the app to sign up for free and start teaching your kid great financial habits.
Distinguishing Needs vs. Wants
The last important budgeting skill to know is how to determine wants and needs. Teach your child the kind of expenses that need to be paid, and what takes priority over other spending. Teach your child that sometimes sacrifices will need to be made in order to be financially responsible, and that usually comes in the form of refraining from spending on unnecessary purchases (wants). Make sure they understand the consequences of irresponsible spending and how these choices can have a lifelong impact on their finances.
Good luck teaching your kids, and make sure to be a good role model to the next generation.
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