Five great ways for parents to teach their kids budgeting skills, including "the jar method" and the "grocery store game"
Five great ways for parents to teach their kids budgeting skills, including "the jar method" and the "grocery store game"
AI's response in regular print | Beverly Hills, CFP®, Joe O'Boyle's in italics
“What are five great ways parents can teach their kids budgeting skills?"
One essential financial skill that parents should teach their children is the importance of budgeting. Budgeting helps individuals effectively manage their money, make informed financial decisions, and achieve their financial goals. Here are five examples of how parents can teach this skill:
Start Early: Introduce the concept of budgeting to children at a young age. Use age-appropriate language and examples to explain the value of money and how to allocate it wisely. For younger children, consider using a piggy bank or jars (see below for the jar method) to divide money into different categories such as saving, spending, and giving.
Set an Example: Be a role model for your children by practicing good budgeting habits yourself. Let them observe how you track expenses, save, and make choices based on your budget. Explain your thought process and involve them in family financial discussions when appropriate.
Allowance and Budgeting: Give children a small allowance and help them create a budget. Encourage them to allocate money for different purposes, such as saving for a specific toy, contributing to a charity, or buying treats. Help them track their spending and review their budget regularly to reinforce the importance of planning and tracking money.
Money Challenges: Grocery Store Game Introduce fun and interactive money challenges to help children learn budgeting skills. For example, create a grocery shopping game (see below) where they have to budget for a list of items within a certain amount of money. This exercise teaches them about making choices, comparing prices, and prioritizing needs versus wants.
Goal-Oriented Budgeting: Teach children how to set financial goals and create a budget to achieve those goals. It could be saving for a special toy, funding a hobby, or contributing towards a family vacation. Help them break down the goal into smaller, manageable steps and track progress regularly. This cultivates discipline, patience, and the ability to prioritize financial decisions.
By teaching children the skill of budgeting, parents empower them to become financially responsible adults who can manage their money effectively and make sound financial decisions throughout their lives.
“Explain the “jar method” for teaching young kids budgeting”
The jar method is a popular approach for teaching young kids about budgeting and money management. It involves using multiple physical jars or containers to represent different categories of money and teaching children to allocate their money accordingly. Here's how it works:
Introduce the Jars: Start by explaining the purpose of each jar and its corresponding category. The typical jars include "Saving," "Spending," and "Giving." You can also add additional jars based on your family's values, such as "Education" or "Charity."
Allocate Money: Give your child a small amount of money, such as their allowance or money received as gifts. Guide them in dividing the money into the jars based on predetermined percentages or amounts. For example, they might allocate 50% to Saving, 40% to Spending, and 10% to Giving.
Discuss Goals: Help your child set goals for each jar. For the Saving jar, they might save for a new toy or a special outing. The Spending jar can be used for smaller purchases like treats or toys. The Giving jar teaches the value of generosity and can be used for donating to charity or helping others in need.
Track Progress: Encourage your child to keep track of their progress. They can use a notebook or a simple chart to record how much money goes into each jar and update it regularly. This helps them visualize their progress toward their goals.
Reinforce Decision-Making: When your child wants to make a purchase, discuss it with them and help them make thoughtful decisions. Encourage them to consider whether it aligns with their goals and the values associated with each jar. This helps them understand the concept of prioritizing and making choices based on their available funds.
Review and Adjust: Periodically review the jars together with your child. Celebrate their achievements, discuss their challenges, and provide guidance when needed. Adjust the allocations if necessary, based on their evolving goals or financial circumstances.
The jar method is a hands-on approach that makes budgeting tangible and easier for young children to grasp. It teaches them the importance of goal-setting, budget allocation, and making intentional financial choices. As they grow older, you can adapt this method to more sophisticated budgeting tools and systems.
“How can a parent teach their child budgeting by playing the grocery store game?”
Teaching budgeting skills at the grocery store can be a practical and interactive way for parents to help their children understand the value of money and make smart purchasing decisions. Here are some examples of how parents can teach budgeting by playing the ten step “grocery store game”:
Set a Budget: Before heading to the store, discuss the overall budget for groceries. Explain that there is a specific amount of money available for shopping, and it's important to stay within that budget.
Make a List: Involve your child in creating a grocery list based on your needs. Prioritize essential items and discuss how planning ahead helps prevent impulse purchases and unnecessary spending.
Compare Prices: Encourage your child to compare prices and discuss the concept of value for money. Show them different brands or sizes of the same product and explain how choosing wisely can help save money.
Use Coupons and Discounts: Teach your child about the use of coupons and discounts. Involve them in finding and clipping coupons or using digital ones at the checkout. Explain how these savings contribute to the overall budget.
Prioritize Needs vs. Wants: Discuss the difference between needs and wants while shopping. Help your child identify essential items that are necessary for meals and well-being. Explain that wants, such as treats or luxury items, may need to be considered separately.
Calculate Costs: As you add items to the cart, involve your child in estimating and calculating the costs. Let them keep a running tally of the total amount spent to provide a real-time understanding of how purchases add up.
Allow Decision-Making: Give your child some autonomy in making purchasing decisions within the budget. For example, let them choose between two options for a particular item based on price, quality, or personal preferences.
Adjust and Substitute: If a desired item exceeds the budget, discuss alternative options or substitutions that meet both the budget and the intended purpose. This teaches flexibility and adaptability in managing finances.
Reflect and Discuss: After the shopping trip, take a moment to review the choices made and discuss how well the budget was followed. Talk about any lessons learned, successes, or areas for improvement.
Celebrate Success: Was your child able to use their “power to choose” to make good money decisions, to get the groceries you planned for, all within the family budget? If so, they win the game. Your child’s “win” can be rewarded by letting your child choose an item from the grocery store (as long as it falls within the budget!). Many parents have shared that they have experienced great success with the grocery store game when their child wins occasionally, but not for each grocery store visit. Note: To vary the likelihood of your child “winning”, you may give your child more responsibility with each visit.
By involving children in the grocery shopping experience and discussing budgeting decisions, parents can help them develop essential financial skills like prioritizing, comparing prices, and making informed choices. These skills will serve them well as they grow and become more independent with their own finances.
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About OpenAI’s ChatGPT tool:
GPT (short for "Generative Pre-training Transformer") is a type of language model developed by OpenAI that is trained to generate human-like text. ChatGPT is specifically designed for generating text in a conversational style. It is a machine learning model and has been trained on large datasets of real-world conversations in order to learn the patterns and styles of human communication.
Joe O'Boyle is the founder and principal of O'Boyle Wealth Management, a full service financial planning and investment management firm, located in Beverly Hills, California. Joe O’Boyle was named to InvestmentNews 40 under 40 class of 2016, and has a catalog of financial planning and investing articles on Money.com & U.S. News. Disclosure information.