Thinking back to the life skills I was not taught as a child and desperately needed as an adult, this is tops on the list.
When I tabulate how much money I made in my first few years in the workforce and where all that money went, my stomach churns with the sickness of regret. Thankfully, I made enough money that I didn’t overdraw my account or go into debt however my spending and use of that money was far from purposeful and by the time I realized I had no idea what I was doing, the money was long gone, with nothing to show for it.
While cannot control my kids once they leave my house, nor prevent them from making poor financial choices, I can seek to instill wisdom and pray that they use that wisdom.
And so, if I were writing my younger self a letter of instruction, I would say to the younger me: Learn to budget.
Since I cannot go into time and re-do my upbringing, learning from those mistakes will have to suffice. So from that experience I realize that I need to
teach my child to budget…and make other wise financial decisions.
Teach them to have a purposeful plan for every dollar they earn or are given.
Teach them that having a budget is a tool for freedom not a shackle of bondage.
Teach them to embrace delayed satisfaction and saying “No” now so that they can say “Yes” to greater fulfillment in the future.
Learning Financial Limits
Has your child ever had to operate within financial limits? I don’t just mean your family limits as in, “No, Andrew, we can’t go there, we don’t have the money for that.” I mean has your son or daughter ever had a hands-on, direct experience with handling money to make purchases? Kids don’t naturally understand the finite property of finances, and neither do some adults for that matter. Whether you make 2 million a year or $20,000, there is a limit to your finances (just ask the celebrities or professional athletes who end up in bankruptcy because they tested the limits of their resources).
If left unchecked, my kids would want everything and anything that seemed interesting to them, and yours would too. Left unchecked, when they start working they will spend all of their money on things they don’t need. Left unchecked, they may very well find themselves enslaved to debt that financed their purchasing habits.
All of this can be avoided by teaching them what a budget is, how to create a budget and how to view the budget as a tool of freedom instead of a tool of doom and dread.
There is much discussion and debate around the question of whether kids should get an allowance, and if so, how much. You can be on the look-out for the soon to be released resource, Kids, Work and Money, which will address this topic in greater detail. But for the purposes of this book, the question isn’t, “Should I pay my kids?” but rather, “How can I best help them learn to make a budget?”
Let’s start with a very basic and foundational approach to introducing the idea of a budget to your child. It all begins with three jars. Leftover sauce jars, salsa jars, any kind of glass or plastic jar that’s been thoroughly cleaned will suffice.
If it is in your budget and you want something a bit more formal, this would be a good option.
Yet you really only need jars. Label one jar GIVE, one jar SAVE and one jar SPEND.
If you have more than one child, also put their name on each jar.
GIVE is just that; it is money the child gives away. If you are a church attender, that money would logically go to your church, or whatever religious affiliation you have. If you do not worship anywhere, help them select an organization that they want to support with their finances. It is an important habit to teach children, (and for us adults to remember) that our money does not need to be fully consumed by us. We can choose to use our money to help others; it should be a priority.
SAVE is long term saving. Another way to label this and think about this as INVESTMENT. It isn’t money that is temporarily saved in order to buy something. This is money for the distant future. It may be used one day for a business investment, or for a downpayment on a home (or even to buy a home with cash, yes, it’s possible!). This is money dedicated to creating a stable financial future and ultimately financial freedom.
SPEND is fun money. It is so your son or daughter can buy a toy, or a pack of gum. As the parent, you maintain veto rights to any purchase they want to make, but so often we want to shelter our kids from what we see as foolish purchasing decisions and we miss the forest for the trees. If our kids never have a chance, the freedom, to spend a little money while they are still under our roof, under our instruction, where we can help them make wise decisions and be there to council them when they make foolish ones, with the goal of avoiding the same mistakes in the future, then how will they ever function in financial health as adults when there purchasing decisions aren’t in dollars but hundreds and thousands of dollars. Junior needs to understand the idea that money is finite. He needs to battle with the decision to buy that pack of gum today or save that $0.75 because he is working towards a larger purchase.
So what does this look like in real life?
Stay tuned to find out. We will look at how this theoretical exercise might look at different ages.