Yesterday I discussed ways to help young children become responsible money managers. As children age, it is time to learn about budgeting. Begin by explaining the difference between short-term and long-term goals. Think of goals that your child can understand. For example, a four-year old may not understand college, but they do understand toys. A good short-term goal might be a new toy. A long-term goal may be extra money for the family vacation.
Help your child determine the amount of money needed for each goal and then estimate the amount of time available to save it. Work together and plan a monthly budget to reach each goal.
Once savings goals have been set, it's time to determine where the money comes from. Sources can include allowance money, birthday presents and other monetary gifts, or income from a part-time job. This information should be included in the monthly estimate.
Next, calculate current monthly expenses and determine which ones your child can reduce to help make all goals as realistic as possible. I realize your children may not want to talk about budgeting and priorities. But if you don't talk about it now, they may have a hard time managing money when they become adults.