Monopoly Money Budget
Young children often have a hard time comprehending the meaning behind numbers on a spreadsheet. To better illustrate how a budget is made, give your child a stack of play money to represent his monthly income. Then, go down the different monthly categories and have him pay you for expenses like housing, utilities and food. Explain that the money left over when you pay for all of your necessary expenses is what is available to spend on items like movie tickets, candy, toys or video games. Discuss what the consequences would be if you spent your money on non-essential purchases before making sure you had paid for your basic expenses.
Keeping a money diary can be a great way to encourage older kids to think more carefully about how they spend their money. On one side of the page, your child can keep track of his allowance and any money received as a gift or earned by doing extra chores. On the other side of the page, your child can write down expenses for the week. Expenses can include money put in savings, gifts for friends or family members, snacks or any small toys that your child has decided to buy. Explain to your child that the goal is to make sure that his expenses are equal to or lesser than his income.
Splurges and Sacrifices
Learning how to tell the difference between needs and wants is an essential budgeting skill. Give your child a sample budget and have her decide which items to cut in order to find the money for the luxuries she wants. For example, if you have a budget for back-to-school clothes, help your child decide how to spend the money wisely. Explain that if she spends all her money on designer sneakers, she will have minimal money left over to afford new shirts and jeans to wear with her shoes. Help her compare prices for various items by going through store fliers or using an online comparison shopping site. The goal is to get her to realize that a splurge in one area will require a sacrifice in another.
Online Budgeting Games
If your child likes computer games, the Rich Kid Smart Kid website has a series of games that are designed to teach money management in a fun and engaging way. For example, the "Pay Yourself First" game talks about dividing money into giving, saving and investing categories in order to build long-term financial stability. The games have levels for grades K-2, grades 3-5, grades 6-8 and grades 9-12.
Launching a blog is a popular moneymaker. Teenagers create more than half of all blogs, according to a Perseus Development Corporation survey. It is simply a matter of choosing a favorite topic, setting up a free website and signing up for advertising programs. Links appear throughout the blog, so teens receive payment every time someone clicks on an advertisement. Regularly updating the blog will bring a stream of traffic and significant revenue.
Doing chores is still an age-old way for teens to make money at home while learning responsibility. However, it is not good to overburden them with too many chores, especially when they already work another home-based job. That's because the teenage mind lacks the physical capability to effectively multitask and organize, according to research published in Child Development.
Participating in on-line auctions is one of nine ways for teens to make money, according to Entrepreneur.com. They require minimal investment, just fees for setting up the auction and selling the item. Teens start out listing used clothing, old toys and other collectibles. As their business progresses, donations from friends and family fuel the momentum.
Eventually some will progress to sales via dropship companies. These firms offer low-cost items to sell without the need to maintain an inventory. It's just a matter of evaluating and researching products and determining the list price, which ends up higher than the actual cost. After buyers purchase items, the teens buy them from the dropshipper, ship them to the buyer and keep the difference. Most dropship companies require a membership fee to purchase the discounted items.
Advertising an at-home service permits teens to create businesses and make money independently. Printed advertisements and on-line classifieds inform residents about the service offered, such as tutoring or drop-off repair services. Teens with a creative ability to make crafts or other useful items can list and sell them via the Internet or newspaper advertisement.
Numerous websites offer ways for teens to make money at home writing. Thus, not only will they earn an income, but also develop writing ability for future endeavors. Teens also feel a sense of pride becoming a published writer. Many magazines accept submissions from teenagers, as well. A teen thinking about starting a career in writing gains experience while earning income at home.
Make a list of meals for two weeks. Write out all the food you will need for these meals. If you need one ingredient for more than one meal, mark a check next to it.
Clean out the refrigerator the night before you go shopping. This makes it easier to come home and unload groceries quickly.
Go through any coupons you have, and look at any store fliers for items on sale. Make a note on your shopping list of which items you have coupons for, or which items are on sale.
At the Store
Bring a calculator along, to keep track of how much you are spending.
Skip sale items unless they are something you will actually eat or use. For example, if no one in your house likes lima beans, don't bother picking up the 10-pound can on sale.
Work the outside aisles first. That is where the produce, dairy and meat are kept. More expensive items are in the middle aisles.
Limit pre-packaged goods, such as cookies or frozen dinners. These cost far more than if you made the same stuff from scratch.
Purchase generic brands, at least once. If your family likes the product, then keep on buying it and save money. If it is no good, then you won't be out a lot of money.
Map out meals on a blank calendar. Plan easy meals for days you know are busy. By limiting grocery trips to every two weeks (or even just once a month) you can cut your grocery bill by quite a bit.
Benefits of Allowance
Giving your child a regular allowance has benefits that can teach important life skills. Children learn basic skills about how to handle money. At the most basic level, children learn how to count coins and bills and receive change from a purchase. Children can also learn how to budget money, save money, give money as charitable contributions and invest money, advises David McCurrach, author and chief executive officer of KidsMoney.org. An allowance can also teach valuable consumer skills such as comparison shopping and watching for sales and discounts. The process of paying a regular allowance to a child can also open up a dialogue between parents and children whereby kids can ask questions about money management and parents can share their knowledge.
When children misbehave or act disobediently, discipline and correction will teach the child which behaviors are unacceptable and which behaviors you desire or expect. Misbehavior should have natural consequences that occur due to the actions. For example, not putting toys away might result in the child losing the toys for a certain length of time. A child not completing a school assignment might miss out spending time with friends because he must work to finish his work. Docking an allowance is often not a natural consequence of misbehavior, so it does not teach an effective cause-and-effect lesson for the misbehavior.
By tying money to good behavior, you might make a wrong connection for your child that could follow him through life. By using money as an incentive for your child to behave properly, you might teach him that money is the only reason to behave and make the right choices, according to the University of Nevada Cooperative Extension. Instead, help instill an internal conscience in a child that leads the child to make correct behavioral choices according to the morals and values you teach. This internal conscience will stay with the child for a lifetime, guiding behaviors and decisions to keep them in check.
When a child misbehaves and you wish to dock a privilege, look elsewhere for something more appropriate, recommends the University of Nevada Cooperative Extension. You might curtail cellphone use, electronic games or TV time when a child does not conduct herself with acceptable behavior. You could dock minutes from these privileges in the same way you might dock an allowance.
As your child grows and develops, teaching her to take on new responsibilities quickly becomes part of parenting. Taking on household tasks has a multi-fold purpose -- helping your little learner to understand that she is part of the family unit, showing her that responsibility is a necessary part of getting older and helping her to understand how money works. Instead of always doing everything around the house yourself, share the responsibility with your child and show her how hard work is rewarded.
If you're hopeful that you can farm out the most dreaded toilet scrubbing task to your first grader, think again. While chores can help your child to understand the importance of earning and managing money, making the tasks age-appropriate is the key to success. Start from a realistic approach that meets your child's developmental level. As your child grows, her chores can become more complex. Expect that your 6-year-old can fold and put away laundry, your 10-year-old can dust the living room and your 12-year-old can help out with the dishes. Never allow your child to use any type of chemical cleaner, heated cleaning device (such as a steam mop) or clean mold or bacteria-filled areas.
Using a reasonable pay scale for chores can help to further money management concepts. Consider what the chore is worth, how hard your child works towards accomplishing the chore and the length of time that it takes. Dusting the coffee table isn't worth the same amount of money that hand washing an entire sink of dirty dishes is. If your child slacks off or does a half-hearted job, dock her pay. This will help her to understand that there is a difference between earning money and you just giving it to her.
After the chores are done comes the spending. Have a conversation with your child about how to manage the money that she is earning in terms of appropriate spending habits. Ask her to think about how much work she did to earn her five or 10 dollars before she quickly spends it on something frivolous. This conversation should also include saving money. Talk about why she might want to save money and how to do it. Suggest that she put her money in a piggy bank or even the real bank to keep it safe.
Help your teenager figure out her monthly income, recommends Agora Financial for Families as part of George Mason University. Income might include allowance, wages and cash gifts. If this amount remains steady, there's no need to readjust the figure every month. If the income amount varies, your teen will need to project her income every month.
Calculate your teenager’s regular expenses and write each one down. Possible expenses might include a cell phone bill, clothing, gas and school fees. Encourage your teenager to designate a percentage of her income for saving and also for charitable contributions.
Subtract the expenses from the income to determine whether your teenager’s income will support her expenses. Any money left over is discretionary spending your teenager can use for entertainment or extra spending.
Discuss possible solutions if your teenager’s expenses are higher than desired. Possible solutions include cutting expenses or finding a way to earn more money by performing odd jobs, working more hours at a job, babysitting or selling unwanted items.
Tell your teenager you will always be available for troubleshooting or consultation if she encounters difficulty with budgeting or meeting financial obligations. Encourage her to approach you with problems before they become emergencies. An example of an emergency might be needing to pay a bill, not having the funds to do so and waiting until the bill goes overdue before seeking help.
Engage in financial and money conversations often, suggests The Mint website. Talking about money, money management, budgeting and spending frequently encourages responsibility.
Set a positive money management example for your child. Strive to set a budget and maintain it. By spending within your limit, saving and making charitable contributions, you set an effective, positive example for your teenager.
Some parents pay school fees for a child and other parents include money to cover school fees in a weekly or monthly allowance. A benefit of the latter option is that it encourages your child to learn responsibility for budgeting and paying expenses. Providing an allowance encourages your child to learn money management skills, states the KidsHealth website. Provide ongoing supervision and support as your teen learns how to budget money and make it stretch to meet all obligations.
Opening an IRA for your child
In order to take advantage of the tax savings offered by Individual Retirement Accounts, or IRAs, your child must have eligible compensation, or earnings. Certainly, your newborn won’t qualify, but kids can earn money for working in a parent-owned business at any age. Just ensure they are actually doing some work, and that the compensation is reasonable for the task performed. Kids can also earn money for modeling, babysitting or a paper route.
The money that is invested in an IRA for your child does not need to come from the compensation he earns -- it can come from you. You can invest up to 100 percent of the child’s earnings or $5,000 per year, whichever is less. This money is invested before taxes are withheld, and the earnings grow tax-deferred. If your child is under the age of majority in your state, which is usually 18 to 21, you will probably have to open a guardian IRA. For a guardian IRA, the parent has to sign the paperwork to open the account and to authorize any withdrawals.
Other Savings Vehicles
A tax-advantaged, or qualified, retirement plan is an effective vehicle to save for retirement, but it isn’t the only one. You can open a savings or investment account for your child and deposit money to be held for his retirement even if he doesn’t have any income. You will not have the tax advantages of a so-called "qualified plan," but you can put money away. You might want to open a joint account in your name and the child’s in order to prevent your child from buying a fancy new car with the money once he reaches the age of majority.
Investing in Your Child's Future
Having your child start saving early for retirement gives him the advantage of a longer time frame for growth, but it also helps to instill good habits early. Include your child in the process of opening the account, and explain how the money is deposited and invested. In an age-appropriate way, show him how the investment earns money and how his savings grow. You will help create financial habits that could last him a lifetime.