Best way to teach children how to budget?

Question

Just wanted to get some feedback from this board, as I've seen many good tips in the past. With my little ones 20 months and 2 months, I've already have them started on the 529 plans, but they have also received a decent amount of bonds for birthdays, etc.

I've let all family know the 529 plan is an option, and some have chosen that route, and others have given cash, which I've deposited in a local brick and mortar bank for now (not talking large sums).

I think there is value in having the brick and mortar type banks so they can maintain thier on accounts like I remember doing as a kid, but is it worth selling the bonds and putting them in better investment vehicles? How do you work with them to understand other savings options other then the typical bank account.

Any advice would be appreciated.

Answer 1

As a kid my parents gave us each an allowance every week from birth. Part of it went into the bank. Part went to us when we were old enough. If we wanted something, we had to save our money for it. As this took weeks or months, we quickly learned the value of money and working for it. I see little need to explain other options to them until they are looking at getting out on their own. It is hard enough for kids to understand money and how to save. The simple plan above worked incredibly well for me. In addition, when they want other things that you would be willing to pay for, you have them work for it. Cheerleading camp? You have to help me clean out the garage for two weekends. This shows that getting money and things you want requires hard work. This is clearly something most kids do not learn these days.

Just focus on the simple concepts until HS at least. You'll be busy with teaching them lots of other things, too.

Answer 2

It may be a little early for them to understand the value of money... The banks in America offer next to nothing for interest... bonds will yield a larger return for your dollar.. Put some money in an index fund of some sort.. the REIT market has been really hot for the last few years... if you are looking for no risk but minimally larger returns than a bank stick with the bonds... CDs are also another safe investment if the money wont be touched for a few years... When I was a kid I used to invest play money into the stock market and figure out how much I made or lost... I lost a lot.. and learned to stick with mutual funds.. To answer your direct question- the best way to teach kids to budget is to tell them to get a job and quit buying them ****- worked for me

Answer 3

The bonds are ok. They grow with interest for 10 years. Cash them in at that time. People buy them because it only costs them 50% of the face value. A gift of money is a gift. As far as what to teach your children, I say lead by example. Dont give your kids everything they want. You seem to be on the right track with just wanting to save for them and teach them to save. You will do fine. Also, I think bricks and mortar banks are ok too. At least the interest is guaranteed and back by the US Govt.

Answer 4

Bonds are great short term investments but the kids aren't going to need the money for many years. Mutual funds are best for safe long term investment.

The other part of the question is about teaching the kids; Financial Piece Jr is a great tool for that. Check out http://www.daveramsey.com/

Answer 5

Teach your kids to buy assets that product regular income. For example, my friend made his kids buy the washing machine. Each time MUM uses the washing machine, she pays RENT to the kids. Now the kids see themselves as ASSET owners and love it. Mind you, they don't like it when the washing machine breaks down and they pay the bills. It's all part of the learning experience.
Education in real life would be the best gift you can give because you can always make more money but you can never get the time back.