Kid-Sized Budget

If you're a parent, you know having children isn't cheap. So, how can you teach them to budget early in life, and save yourself money down the road?

Allowances

Give your child a set amount of money each week for food, clothing, and entertainment. A good rule of thumb is to tie a child's allowance to his or her age. For example, if Mary is 12 years old, give her 12 dollars a week.

Instill a work ethic

Once your children are old enough, encourage them to get a job. Working for minimum wage will teach your kids the value of the dollar.

Mistakes can be good

Let your children make mistakes. They will learn from them as well as their successes. For example, if Joey blows his week's allowance on a new c.d., he won't be able to go to the movies Friday night.

Discuss finances

Tell your children the truth about family finances. As soon as they're old enough, include them in your family's budgeting, planning, and saving processes. That way, your kids can know what the family can and cannot afford.

Set a good example

If you're not money savvy, chances are, your kids won't be either. According to the American Savings Education Council, less than half the parents surveyed in 2001 say they make a budget and stick to it. 38 percent of parents report they generally leave a balance on their credit cards each month. And, 11% say they have no personal savings.

If you fall into one of these categories, sit down and figure out your financial goals. Take a minute to write them down and prioritize them. The list below includes some examples. There are no right or wrong answers. It's an exercise to help you get a handle on what money means to you. That way you can pass those ideas down to your children.

Home
Household expenses
Education
Recreation, entertainment, travel
Savings, investments
Charitable contributions
Other

Use life experiences

Use daily opportunities to bring up the topic of money. If you take advantage of everyday "learning moments", you'll create an ongoing dialogue with your children. Here are some examples:

>>Getting the mail
When you read the mail, explain what the credit card bill is. You can also go over things like bank statements. These are great ways to teach your children how interest can work for and against you.

>>At the restaurant
When you're out to dinner, give them a limitation on how much they spend on their meal and give perks if they go under budget: "If they spend less, by drinking water instead of having a soda, then they get to keep the extra," says Ellie Kay, author of Money Doesn't Grow on Trees.

>>At the store
The next time you go to the grocery store or the mall, bring your child along. It's a great opportunity to explain why you're putting the bill on your credit card. Or, why you've decided to pay cash instead. If the item is expensive, you can also explain what you'll give up if you buy that item.

>>Watching TV
Television is a great opportunity to bring up money. Explain the intentions of commercials. For example, how much will that car really cost? Or, tell them why characters on their favorite shows can spend money like water.

>>Reading the newspaper
Headlines are often about the economy, stock market, people assuming wealth, and others losing everything. Take advantage of these stories to begin discussions about investing, saving small amounts over time, risk, and long-term goals.

Quicken.com, American Savings Education Council, University of Missouri

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