Budgeting for Kids (How to Teach It)

Budgeting for Kids & How to Teach It by Tim Bennett, Head of Education  from Killik &Co.

Lockdown has presented many families with all sorts of logistical, practical and financial challenges. But it has also thrown up opportunities. One of them has been the chance to engage more often with our children and take the time to teach them a few things we probably all wish we had learned earlier in life. And what better example than how to understand and manage money?



Budgeting for kids

Here are my top four tips for parents wanting to give children of almost any age a better grasp of where it comes from and just how easy it can disappear. Budgeting for kids is such an important lesson.

There’s no magic money tree

Children are naturally inquisitive and have an appetite to learn. Sadly, if they are anything like mine, they will be equally voracious when it comes to acquiring stuff, whether games, bikes, clothes or toys. So, it is vital they understand early where it all actually comes from. The key here is to ask, rather than tell, them. In short, life only presents a few ways to acquire money – unless you marry it, inherit it, steal it or win it, most people are faced with having to earn it. Why not, therefore, take the time to explain what Mummy and Daddy do all day while they are at school and why?



The cost of opportunity

Before lockdown, which has massively curtailed our spending options, we lived in a world of huge and almost overwhelming choice. This hits children early, from the moment they first visit a toy shop, play an online game or start receiving pocket money. So, it is vital they grasp the concept of ‘opportunity cost’ – the idea that every spending decision comes at the expense of something else. For example, “if you buy Buzz Lightyear now, you can’t afford Woody”.

So, how can we improve our children’s grasp of this slippery concept? When they are young, the key is to make sure they realise that money is a finite resource – a pocket money budget, supplemented only on special occasions such as birthdays, Christmas or to reflect special achievements (perhaps at school) is a good start. As for saving for the future, a simple incentive scheme, whereby a parent agrees to match every pound saved (but not spent) with one from their own pocket can help to nurture a sense of the value of delayed gratification and thinking about their future selves.


Tasks and rewards are effective when budgeting for kids is being taught!

During lockdown quite of few of us have been hurling ourselves into cleaning, DIY, cooking and childcare with varying degrees of enthusiasm. But right there lies an opportunity to educate our children by getting them involved and giving them the chance to earn a little extra pocket money. Even relatively small children are often capable of a bit of dusting in their own rooms, for example. Whereas, older kids can unload dishwashers, clean cars or hoover. The point is twofold – you want them to feel responsible for the home they enjoy and show them that effort and reward are connected.


Money makes money

A key concept all children (and adults) must be taught if they are ever to fully understand saving – the power of compounding over time.

There is no need to make this too technical to start with – for example, you can start with quiz questions, such as “if I put a domino on the floor and then another that is 50% taller next to it and then another that is 50% taller than the second one and so on, how tall with domino 32 be?” (to which the answer is higher than Mount Everest). Those examples can lead naturally into a discussion of how you create returns on money. Does  50% sounds realistic to them? If not, what might they have to do to achieve a high return versus a more modest one. Clearly the level of this conversation can be tailored to the age, knowledge and interest level of the child. The point is to ensure that they understand that money left alone in the right place can grow. As such, they are finding out about one of life’s very few free lunches!


Budgeting for kids is not hard to teach but it is absolutely vital to their development into smart, savvy and solvent adults.

If you enjoyed this post on budgeting for kids you might also enjoy my post on creating a money-saving mindset



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