December 1, 2020  

With the start of a new year right around the corner, why not start working with your children on developing, and documenting, a budget? 

If your family is making New Year’s Resolutions, this one will benefit your children for years to come and is something that can be adjusted based on their age. 

The two concepts you’ll have to work on center around the relationship between work (making money) and money (spending, saving, donating). These seem like pretty simple concepts but can be tricky to teach in a world where instant gratification seems to be the norm. 

Where Does My Child Get Their Money? 

This is not the money they get as gifts, but the money they spend when the gift money runs out.  

Another question you should ask yourself is, “what is my child doing to earn their money,” with earn being the key word. And if your child is receiving an allowance, “what work are they doing to earn their allowance?”  

There should be tasks associated with receiving an allowance, or a request for additional monies needed for a purchase in excess of what they have saved. For younger children the tasks may be as simple as picking up their room, for older ones it could be taking out the trash or washing the car. Whatever you choose, the important concept for them to learn is that they need to work for the money they receive. You also need to determine how they are spending the money they earn.  

The Three Money Jars 

One way to teach them how to budget is called the “three money jars” and here’s how it works.

When your child earns money (from work or gifts), have them budget it into three jars: one for saving, one for spending, and one for sharing or donating. This exercise helps them focus on short term goals (like candy), long term goals (like purchasing a new app), and giving back (donating to a worthy cause). Some very real conversations will be had about exactly how to allocate the money, I’ll leave the percentages up to you. But the sooner you start the process, the sooner your child will learn that money is not an infinite resource and that if they really want something, they’re probably going to have to work to make money to pay for it.   

Once you’ve developed a budget, document it and refer to it often. If something changes, such as them making more money, they will need to change the amounts they’re putting in the jars, update the budget, and make sure they understand the impact of the change – good or bad.  Discussing their budget – and reviewing it at appropriate times – will help your child develop an understanding of the commitment needed to successfully manage their money throughout their lifetime. When they go to college should not be the first time they have to budget money, as by then they may have formed poor habits that may be hard to break.   

My wife and I often have spending conversations with my grandson. It seems like every time we’re in the car with him, he wants us to stop at a toy store and buy another dinosaur for him. Once we started discussing the impact the dinosaur purchases were going to have on our ability to visit Disney World again, the requests slowed down considerably. Yes, at five he is already a big-time Disney fan. His parents are going to have to set up three jars for him soon so he has the financial ability to continue being a fan when he visits Disney World with his grandkids. 

Robert Baer is a Vice President at Fidelity Bank. He coordinates Fidelity’s Financial Literacy initiative.