How to teach your kids to budget, and sleigh it

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With Christmas fast approaching, educating your little ones about how to draft up a strong budget is probably well below “cook delicious ham” and “buy fancy bon-bons” on your to-do list. Plus, it can be a touchy time of year when it comes to money – do you really want them to know how much Santa spent on their presents?

However, I would contend that Christmas and the holiday period in general is the perfect time to start having some budgeting-related conversations with your children. Not only do you have the time (an abundance of it in some cases), but there are ample opportunities that can be used as a way in to talk about bigger money concepts.

The festive season provides ample opportunities to teach your kids about money.Credit: Aresna Villanueva

Shopping for Christmas lunch? Talk about unit pricing. Helping them open a streetside lemonade stand? Break out the profit and loss spreadsheets. Watching critically acclaimed 2007 jukebox musical comedy Alvin and the Chipmunks? Time to discuss the benefits of government bonds.

What’s the problem?

Financial literacy among younger Australians has been historically poor and is – unfortunately – getting poorer. Results from the latest Household, Income and Labour Dynamics in Australia survey of about 17,000 people revealed those aged 15 to 24 had the biggest decline in financial literacy of all age groups. Improving this isn’t just about helping your kids save a few bucks – a study from last year found better financial literacy leads to greater life satisfaction.

What you can do about it

If you’re thinking about teaching your kids about the wonders of a budget, here are some places to start:

• Get your own house in order: This should be fairly obvious, but it’s not going to be much good if you’re trying to teach your kids about managing money if you don’t manage money particularly well yourself. Worse, you might even risk instilling some not particularly good practices in them. Good thing someone wrote an excellent piece a few months ago on this very topic.

• Teach them about costs: One of the challenges when it comes to teaching children about budgeting is that typically, they don’t really have any costs. They don’t pay for bills, food, or a mortgage (freeloaders), so understanding that money doesn’t just infinitely pile up until you’re ready to spend it can be hard to grasp. Dr Tracey West, financial education manager at kids financial literacy foundation Ecstra, says introducing the concept of costs to them in a way they understand can help them grasp the concept. “They might be working towards buying a particular toy, but remind them that things come up like birthdays and going to markets,” she says. “They might want to spend money on fairy floss, so it’s the idea of telling them if they spend money on particular things, it might take them longer to save for their bigger goal.”

• ...but let them make mistakes: Let’s be real, we often don’t get things right, and it can be important that our kids don’t either, West says. “Perhaps they make some frivolous spending decisions, and they feel a bit of regret afterwards. Making them aware of that feeling and then how they felt afterwards can help them make more conscious decisions in the future,” she says.

• Debt the halls: Finally, while it might sound like something that would make any child’s eyes glaze over almost immediately, talking about debt can help them understand the importance of managing costs. Watching us constantly tap our cards can, again, instil in them the idea that money is infinite. Telling them that no, you do actually have to pay off this credit card at the end of the month, can help them be better savers when it comes to their own budgets.

Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.