Monday, September 21, 2015

Involving Your Kids in the Budget

At this stage, my daughters are fully aware of the budget and YNAB, and Sylvia is using YNAB for her own budget. I talked about this in the Conversations About Divorce podcast, but not sure I've covered this here. I know I would not have been able to change budgeting course without involving my kids.

Now let's be clear: this is not about making your kids worry about money or feel bad about what they need, but about using everyday opportunities to teach money lessons.

I don't think there's anything my girls don't know about my money life these days, but of course, it didn't start that way. Here's a basic guide for introducing age-appropriate money lessons:

Pre-school: Choices. You're at the grocery store and they ask for this, that and the other thing in every aisle. Let them choose one item. Of the multiple things they want, they'll have to choose one. You don't have to bring up prices at this point - of course, if they want something outside of your budget, that'll have to be a "no." I always claimed veto power to control this. But overall, at this stage, you just want to bring up the concept of prioritizing and that you can't have everything by giving them the power of choice.

Elementary School: Now, you can introduce the concept of a budget. At the grocery store (or Target or the amusement park): they have $x dollars, and it's up to them how many items they get for that amount. This is when they start learning about value.  My own daughters would make different choices, depending on the situation, but I could see that they were figuring out the value set by the "invisible hand" for the items they liked. This can also work for special events, buying gifts for friends' bday parties or teachers, maybe even helping to plan a family vacation. This is where they start wrapping their head around the concept of money.

Middle School: Around this time is when the girls started understanding the household budget. They would often see it on the computer and they would ask me questions about categories. I would also tell them when there were changes that would affect them, and sometimes they would help me re-prioritize based on new information. Again, this is not about making them worry about it, but understand how to balance it all. For instance, if they wanted to start a new activity that would cost money, they would have to make a sacrifice somewhere else in the budget. This is also when they started paying for their own "wants" out of their allowance, while I continued to take care of their "needs."

High School: Once they have their own job, they should have their own budget. I'm a stickler for making Sylvia save at least 20% in her Emergency Savings. (And this is also when she learned that a broken boot was not an "emergency." Instead, she paid for shoe repair.) I even make Riley save 20% of her allowance. Ideally, they should also start learning about investments and retirement savings, too, but those are more abstract concepts that still may be hard for them to grasp. But if you can at least make savings a regular habit for your kids, that's a good start. Also, Riley and I talk regularly about how to pay for college. It's a fine line between stressing them about college loans/savings and helping them think proactively and realistically about it, and there's only so much information you can work with until acceptance and financial aid has been sorted, but it should definitely always be part of any conversation about college choices.

Most kids aren't getting any financial education in school so it's crucial that it starts at home. Sylvia didn't have an  economics class until her senior year, and Riley hasn't had any to date. Sylvia said she felt ahead of the curve in her class because she was already familiar with YNAB and budgeting.

Not all the conversations go swimmingly, of course, and they're practically guaranteed to make some poor spending choices, but the earlier they learn these lessons, the sooner they can recover. And, hopefully, avoid some of the mistakes that I made!

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