In a recent survey of teen money habits and beliefs, the National Consumer League found that most young people gain knowledge about saving, spending, and credit from their parents. However, their parents are likely to spend more than they make, leverage their credit beyond what they can afford to pay back, and may reach bankruptcy as a result.

Of course, not all American parents have poor money management skills, and may want to teach their children proper ways to spend and save. Or, after realizing their own bad habits, may want their children to develop better budgeting insight.

A number of financial institutions and consumer advocacy organizations have a number of tips to teach children about budgeting, regardless of age. Many tips are not complicated or elaborate. Something as simple as having a son or daughter maintain basic records or allocate their allowance between what they hope to buy and putting a few dollars into savings can act as a model for their own budgeting when they have to make decisions on their own:

• The Credit Union Co-op suggests that children as young as 5 can practice budgeting. Parents can setup three piggy banks or containers labeled "Spend", "Save" and "Share", then allow children to make contributions to each container from cash gifts or allowance. In this way, children can decide how to allocate money and learn how to save for themselves while giving an opportunity to use funds on purchases of their choice.

• If it is necessary to take more of an explanative approach, Kipplinger.com suggests a process called "Let's Pretend". Your children can work with a mock salary amount you suggest, and then have to go through the calculations to deduct all expenses and necessities from their salary.

• Allow your children and teens to review receipts and bills related to the family budget alongside your bank and earnings statements. These items will demonstrate the relationship between income and outlays.

• When they begin have (e.g.: allowance) or earn (e.g.: their first job) their own money, have your child or teen keep a running log of their spending for a week. Then, you can work with them to calculate their "bottom line" based on purchases versus earnings. They may be able to assess their own positive or negative cash flow and make changes based on their money habits.

Any of these simple tips, whether simulated or hands-on, will teach your children about managing their money through budgeting.

References

National Consumer League. Teens Spend Money, Want Credit, Need Education
Money Wi$e. Talking to Teens About Money.
Space Coast Credit Union. Raising Money-Savvy Kids.
National Consumer League. Teens and Finances 2002 Survey Results: Teens and Financial Education.