Creating a Budget: How Soon Should You Teach Your Kids?

Teaching children the importance of money management is critical during their formative years. Such skill will help them in other areas of their life, particularly their career as well as their adult lives. The question then becomes: When should I start teaching my children about money management tools such as budgeting, savings, investing etc.?

Studies have shown that children can easily grasp financial concepts if they are explained to them in a format to which they can relate. Throwing a textbook containing financial concepts at children will do no good, as their brains are unable to grasp complicated, abstract ideas. However, if we ask children what they would like to have as their birthday gift, they would jump at that opportunity to tell you exactly what they want. That conversation can be a starting point to explain the maze of related financial concepts such as wants and needs, opportunity costs, savings, budgeting and credit.

Birthday Wishes - and Budgeting

Every child looks forward to his/her birthday, and children in elementary schools are particularly eager to express their desires in the form of specific toys and gadgets. One can use that opportunity, along with the provision of periodic allowances, to start talking about budgeting.

For instance, on a child's sixth birthday, a parent can help her child organize that birthday. That may include the theme, location, party favors, birthday cake, invitations, and time and date. An occasion like this can also be the backdrop of explaining the costs of each component, as well as the concept of comparison shopping. Finally, the child can help build a list of expenses for that event and then tally up the cost. Over time, such a planning activity can get more detailed, with the child making advanced decisions on major expense categories and, eventually, planning for a major purchase.

The key in introducing budgeting to children is to do it in stages, depending on their age, as well as their understanding of costs and benefits. This planning activity should be followed by an evaluation of that activity after the event, that is, how successful were the children in staying within the means, and if there was any deviation, what were the factors that led to the deviation.

Putting the Fun in Budgeting

Combining fun with a planning or budgeting activity will be more successful than just teaching children about budgeting. Once the parent does this sort of activity with his/her child several times, it becomes a standard practice in their household, and arguments and tantrums can be avoided. Eventually, children will learn that they cannot get everything they want, and that there are costs attached to everything.

A lesson in budgeting, if done early and regularly, will go a long way in raising financially savvy children. They will find that tasks in their future, professional lives become easier to tackle as they have learnt to break them down in easily manageable components.

Professor Prakash L. Dheeriya, PhD is the author of the 20-book series Finance for Kidz and the 15-book series Law for Kidz. All of his books explain complicated concepts through children's toys, stories and experiences. His books are available in 10 languages and in 51 countries on Apple's ibookstore, as well as on his website at and