For kids, the budgeting their parents do to pay their mortgage or rent, buy groceries, pay utilities, and afford luxuries like eating out or toys, can seem like it happens in a different world. Often, all they know is that money or credit cards buy things. But why their parents choose to buy something 'boring' like a lawnmower instead of 50 boxes of their favourite fruit snacks is a mystery.

Budgeting is about making trade-offs between competing wants. Understanding that money is limited, and you have to make choices and compromises when you decide how to spend it isn't an easy lesson to learn, but it's an important one.

Knowing that won't just help kids understand why you don't eat out at their favourite restaurant every night – it will also help them make good choices when they're older about managing their own money. Teaching your kids to budget is a way to protect them in the future – because they'll be less likely to spend all their money before the end of the month or misuse credit when they're adults.

So, how do you teach the kids in your life about budgeting? We give you tips on how to teach them how to manage money based on their ages.

Ages 3 to 7

Children at this age are still learning about the concept of money and how it works. As a parent, you can support and encourage them in these ways:

  • Use real or pretend food items to set up an imaginary grocery shop and have your kids decide what to buy based on how much money they have to spend.
  • Take your kids with you to go grocery shopping and tell them what the 'treat' budget is each week then let them decide what to buy. If they choose to buy a toy at the grocery store instead of cookies, they might miss treats that week and choose to buy cookies the next week. This is an easy way to help kids understand the trade-offs you make while budgeting with the only consequence being that they'll crave cookies for a week.
  • Do your kids want to go on a special trip? Maybe they want to go to the zoo a few towns over or maybe they want to go to Disney World. Get them to help you save for it. Have your kids contribute money they earn from doing small chores around the house to a savings jar or get them to help you strategize on what you can cut down on as a family to put more money aside for the trip. Maybe you decide to skip pizza night for a while or maybe you cut back on going out to the movies. Helping kids connect sacrificing one thing to do another thing they want to do is an important lesson.
  • Find board games that help kids think about money and budgeting to play during family game night. One age-appropriate example is The Allowance Game.

Ages 8 to 12

Kids at this age likely know about the need to make sacrifices in order to get things that they want but might need help learning about budgeting for medium- and long-term goals. Here are some tips and tricks for parents to help support them:

  • Start talking to your child about saving for their post-secondary education. If you're putting money aside for them through an RESP, tell them how much you're putting aside and why its important to you to do that. Talk to them about student debt and if it's impacted you, what that's meant for your life. Encourage them to start thinking about working as a teenager and saving money for university or college, too.
  • When your child gets money as a birthday or holiday gift, teach them how to create a budget for it by dividing it into jars or bank accounts for immediate purchases, things they are saving up for like a toy or video game they want, charitable donations, and longer-term goals like their post-secondary savings.
  • Have your kids create a budget proposal for their allowance if they get one. Before they get it, ask them to think through what they will do with the money and what their goals are for? Is it to use for as much candy as possible? What will they be giving up if they do that? Talk through their thought process with them and point out things they might be missing. Like having enough money to buy a video game they've been anticipating when it comes out!
  • Play age-appropriate games about money management at family games night. For this age group, consider the game Payday.

Ages 3 to 7

An RESP is one of the easiest and best ways to save for your child’s future

Ages 12 to 15

At this age, your child might start earning money either from babysitting or getting a part-time job after school. They need your support in figuring out how to manage that money responsibly. Here are some ways you can support them:

  • Include your kids in budgeting conversations around how you manage your money and what you're saving for. Get them to understand that budgeting is about deciding what kind of life you want and then finding a way to make that life a reality. Ask them to imagine their future life and talk them through how they would need to budget for each of their long-term goals.
  • If you move during this period, involve your kids in the financial part of the decision-making process. How much rent or mortgage can you afford? If you get a more expensive place, what are the trade-offs? What would they do, if they were in your shoes?
  • When your child gets their first job, make sure to get them to divide their money into immediate purchases, short-term financial goals, charitable giving and longer-term goals. Talk them through how much they want to allocate to each category.
  • Have your kids look at your budget for areas you can save money on as a family. If they find ways to save money, give them 10% of it for a few months in the form of an addition to their allowance.

Ages 16 to 18

Your child is getting ready to potentially go out on their own, or at least have more financial independence. You want to make sure they're ready for that. Here are some tips for ensuring they're ready to leave the nest when they do:

  • Have your kids manage grocery shopping and meal planning for a week every so often by giving them a budget in cash. Make it fun by setting it up as a competition between family members for who can get the best deals or make the best meals while staying on budget. Get ready for some dinner misses — but keep in mind that someday you will all remember the burned lasagne and laugh.
  • Talk to your older kids about their post-secondary budget and how they're going to make it work. Have them try out living on the money that they will have to live on while away school for a few months so they can see what it's like.
  • Have them open a Tax-Free Savings Account (TFSA) when they turn 18, so that they can start putting money aside for their goals like a car or more long term, buying a home. Celebrate the day that they do that by going out to dinner and giving them a bit of money to contribute to the account. Help them plan out how they will start contributing to the account when they have the income to. An option to help save is to set up a Preauthorized Contribution.
  • Figure out what you usually spend on your kids in three months and give them that money to manage themselves, if possible. Make sure to note what they'll need to purchase for that period and check in after to see how they did. Giving your kids more independence with money will help them make smaller money mistakes that you can help them correct and give them more confidence with money.

The family that budgets together, meets its financial goals together

Knowing how to budget is an invaluable skill but it involves understanding a lot of complex things – from making trade-offs to sacrificing short-term fun now for the life you want later.

These are lessons that will help your child fulfill all their dreams in the future, but they can be hard to teach. It's okay if your child gets an opportunity to budget and fails – they'll remember that! And when they're older they'll likely be glad they did it when the consequences of the lesson were small in comparison. You've got this — and soon they will, too.

Ready to get your finances on track for your future? Come in and speak to a Scotia advisor today