Tips for Teaching Children How to Budget: Wants Versus Needs

In the learning process, many children struggle trying to understand hundreds of new words and related concepts. The word budget is not one that most parents teach children very early in life, as they receive most of what they need and want from their parents, as well as from others and thus, are not involved in family budgeting, to any extent. They could and should be.

Older children, teens and adults, once taught budgeting basics, begin to manage their money more effectively. Even young children need to understand the significance of a budget.

Needs versus wants:

Simplified for younger children, budgeting becomes a question of needs versus wants, which can be taught from an early age onward. 

For example, Teddy, a five year old, screams at his parents, demanding that they purchase a truck he has found on a shelf, in the toy store. 

“I want that truck!”

“You want it, but you don’t need it,” replies his mother, teaching him to manage money effectively, by learning the difference between his needs and wants.

“Teddy, you don’t really need another truck, as you have several already. Perhaps your father and I can put it on the list of things that you want for Christmas. Together, we may be able to work it out on our family budget.”

The word budget is now part of a five year his vocabulary, even if he does not fully understand.

Learn to say no:

“But I want it!” insists Teddy. “Buy it for me, now!”

Maybe that approach has worked for him before, but not this time. Saying no is often hard to do with small children, but it is important, as they need to understand what no means. 

Set allowance guidelines:

Even a young child can learn about budgeting by receiving and spending his money, within the guidelines of an allotted weekly allowance.

“How about if we put away a quarter from your allowance every week and save up for your truck?” 

“But, I need my allowance for candy,” Teddy argues.

Finding sufficient income to meet basic needs is not always easy for parents. Giving in to the demands made by their children may not necessarily be the best solution either. It is merely temporary pacification, which can lead to later demands of the same nature.

“We have some Halloween candy in the cupboard,” states his mother. That simply means no, stated differently.

Talk about budgeting:

“We will talk about buying that truck you want when we get home,” suggests Teddy’s mother.

Now, Teddy’s mother has opened the door for further dialogue about budgeting with her son. Dialogue is important, as Teddy may still not understand the difference between what he wants and what he needs.

Does he really need candy?

“If you are on your best behavior, you may have a chocolate bar tonight.”

Maybe candy should be a special treat or a reward.    

Draw up a tentative budget together:

“I have ten dollars in my piggy bank,” boasts Teddy.

“Two more dollars and you will have enough to buy that truck,” replies his mother.

“But then I won’t have any money in my piggy bank.”

Write everything down:

“You are going to need a new winter jacket,” says Teddy’s mother, taking a notebook and making a notation about how much money he has in his piggy bank, the cost of the truck and the need for a jacket. 

“Put this in the drawer where you keep your allowance.” 

Teddy’s mother is working out a simplified, long-term solution with him, letting him start to assume some responsibility for it. Teddy will begin to understand that on a budget, money is necessary for things he needs. Not every cent he has can go for the fun things that he wants. 

Bargaining:

Children soon learn how to bargain with their parents.

“If you and daddy pay for my jacket, then I can buy that truck,” suggests Teddy, who has already forgotten about the candy. His mother has not, but she is not going to reward him for his earlier, bad behavior.

Reaching a compromise is often a good idea, as children see that it is possible to discuss and resolve budget issues with their parents. 

“One quarter a week, though,” insists his mother, smiling, knowing that her son is now able to bargain with her. 

“It’s a deal.”

“Let’s go home and get that chocolate bar, I promised you.”