The 3 Step System to Teach Your Kids How To Manage Their Money!

apple-589640_1280Are you constantly bombarded with requests for money? Are you opening your wallet every time you turn around  for school activities, birthday parties, toys, treats and costly adventures?

Your kids may be at an age where they can start making a lot of their own spending decisions!

Give your kids the education and tools now and allow them to practice and make mistakes in a low-risk setting.  Financial education is not taught in schools, kids who don’t learn these fundamental skills at home are at a major disadvantage when they start their adult lives.

Here is the rough process I recommend for parents who have their own financial house in order. If you feel like you are still learning in this area, that is OK too! These same steps will help you create a an adult/family budget too!

I recommend the following detailed steps for teens, if your kids are younger, you could start with just a couple of categories and go from there, “entertainment” is a fun category that even younger children understand.

1. Figure out how much you are spending per year (or what the reasonable ideal is ) on each child in each variable category that you would like them to start paying for. These are the extra things like clothing, extra curricular activities, entertainment, snacks, cell phone bills, etc. Figure out a yearly amount and divide by 12 (to get monthly, or to whichever time frame is common for your area)

This is the amount you will be giving your kids each “pay period” It might seem like a lot, to all of you – you need to make it clear what this money is supposed to cover and there will be no more, they are expected to take money out of their own budget/account for everything they want.

2.Sit down with your kids and help them to set up a budget. Figure out the categories they should be working with. Include savings both long term and short term. Include savings categories for one-off expenses like yearly club registration fees and things like that. Give your kids a notebook or help them create a spreadsheet, or use the envelope system to get them into the life long habit of tracking their spending. You might want to stick with cash or open a bank account with a debit card.

3. Have regular money check-in meetings where the kids can ask questions, talk about some of their experiences, you can help problem solve or adjust the budget as needed. A great time to do this is at the end of the month (pay-period).

Your kids will struggle, they will make mistakes, they might have different spending priorities, blow their money or miss out on experiences or something they want to do because they spent their money elsewhere. The hardest part of this process is letting that all happen. The idea is to give them the tools and set them up for success but resist the urge to swoop in and save them with extra money if they make a mistake.

The positives: Your kids will be learning life skills early, they will learn how to use money as a tool, they will gain confidence and freedom as they master their money.

It would probably be a very insightful process for you to actually see what it is costing you all in to raise your kids. There always have to be a balance in life and it is so easy to slip into one extreme: “I just don’t spend money unless I have too.” or the other extreme: “pay the money for everything that comes up, without thinking about it.” The old adage goes” “You can have most of what you want in life, you just can’t have it all at once”

You don’t want your kids to miss out on valuable experiences that might help shape them into the people you want them to be, or give them a scarcity mentality about money – that takes a LONG time to get over that. On the other hand, you want to give them the critical thinking skills and ability to weigh decisions, realize there are many different options and the  opportunity costs (the basic fundamental concept of economics) of each.

You can start really small and just consider one aspect such as entertainment. You can have them brainstorm a list of all the things they can spend money on/like to spend money on/want to do in the future and help them create a budget to include all of their wants and goals.

Extra bonuses: Budgeting allows your kids to practice goal setting and long term planning. When the money for the month runs out, it runs out.

Having your kids learn to budget will probably save you money in the long run and cut down tension because they won’t be asking for money all the time –  and you won’t have to agonize over it every time they do.

Are your teens  discovering they want to earn some extra money? Check out our “Art of Money-getting” Ebook!

Looking for a fun way to earn extra money as a family? Check out our post on Home Town Tour Guides

How do you teach money management to your kids? Please share with us in the comments below!

Posted in Activites/Games, Children's Development.


  1. Once I have a bit more data on how much we actually spend per kid I think I will see if my wife will let me do this. I like giving them the opportunity to steward the money more than giving a small “blow” allowance and otherwise being the First National of Dad.

    • Thanks for the comment, David.

      “Steward” is a good word and way of framing it that I didn’t use in the post. Learning how to be a good steward of all our resources is an important art of growing up and becoming successful adults. Money is the obvious one, but time and other resources as well. Think you just gave me an idea for a new post 🙂

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