When it comes to spending money, kids generally will make a pitch for your wallet before they use their own resources to make a purchase. Its interesting that when kids, my own included, absolutely want or need something, the absolute want or need often goes away if they are forced to use their own money. Makes you wonder just how many had-to-haves you got suckered into, doesn’t it? There is a way to get around this phenomenon. Teach your children how to budget by giving them actual experience. Show your children how to budget for one specific want or need by using their allowance money.

Take a look back at my February 6th post entitled, The Ins and Outs of Allowance, which suggests how you should set up allowance with your child.

Allowance is given to cover expenses your child wants to be responsible for. Dollar amounts are then assigned to each expense category. Here is where the budgeting opportunity comes in. There is no hard-and-fast rule that mandates that the $15 allocated, say, for toiletries expenses MUST be spent completely on toiletries each month. A portion of this money can be budgeted to a category for which your child has set a savings goal.

Several Christmas holidays ago, Allison, my newly minted teen, wanted her own green iPod. We agreed to get it for her as her one big gift instead of a number of smaller gifts. But this was to be the gift from Mom and Dad. One box under the tree. Could she handle it? Yes, she said firmly. And she did so beautifully.

Later, when her sister, Amanda, 11, saw how popular and important the iPod was at school (everybody had one), she asked for one herself — in January, after Christmas and not even remotely close to her December birthday. We explained that she had two options: She could wait for next Christmas and strike the same deal her sister made with us or use the money in her savings account to buy the iPod.

Now, does anyone out in reader land want to guess whether or not Amanda got her own iPod at that point? No, she did not. Using her money was not an option. Which makes me wonder — just how important a purchase was it to her after all?

Using allowance money for things your child thinks she needs and wants is an excellent way for her to stop and think as she builds toward her goal. Not to mention the time it gives parents to see just how important the want or need really is to their child.

Saving toward a goal presents a cooling-off period for kids, introducing them to a critical life skill — that of delayed gratification. And many kids themselves are surprised at how different they feel about something they absolutely wanted six months ago.

This is, of course, only the first step toward the real budgeting process. This will get their feet wet one goal at a time. More in my next post on how to get started.

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Written by Susan Beacham
Susan Beacham founded Money Savvy Generation in 1999 after almost two decades in private banking and investment management complemented by considerable time teaching at the elementary level.

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