Teaching Your Kids to Budget with Envelopes

We all want our kids to learn how to look after their money and handle it well, but it can be difficult to know how to do so. Do you take half the money away from them to save, or do you let them make their own mistakes? One ideal way to teach your children to budget is by using envelopes.

The system is very simple, but it works best with school-age children. They are better able to understand the concept of dividing money up and saving it for specific things. They can also write out the list of things they want, which is helpful to you!

To start off with, you will need several regular, letter envelopes. Colored ones make the experience more fun. You could also use separate boxes or piggy banks, but envelopes are far easier to store. The only thing you need is a small box to file them in.

Sit down with your children and give each one a piece of paper and a pen. Tell them that they need to write down first of all, how much they earn each month or week, depending on when their money comes in. This number goes at the top of the page. Next, they will need to write down one to three items that they would like to buy, along with the price. For example, your daughter might want a special Barbie that she saw for $20.

They should also write down how much they plan to spend immediately. This would be money for candy, collectible cards, sodas, etc. This amount is deducted immediately from the total. You can make an envelope for this amount. Write the quantity on the outside of the envelope, along with "General Spending" and put the money into this envelope.

Next comes the hard part. You will need to help your children decide which of the toys or items they want is most valuable to them. This will receive the largest part of saved money. Decide how much should go into the special account for each item and how long it will take to earn enough money.