Building A Family Budget with Your Children
How many of you have developed a family budget? This should be a budget that is reflective of your current accounts, debts, payments, as well as your future needs (RRSPs, RESPs and emergency funds). Now here’s the tough question: how many of you have shared this with your children?
The reason I ask this question stems from a conversation I had with my tween this weekend. A conversation that made me feel as though I had failed in including him enough in our income and budget preparation, as well as what kind of income is needed to survive in our current economy. A group of kids in his grade could not wait until they graduated high school so they could live on their own (to be young again!). When I asked about the amount of income they thought they would be bringing in, I was shocked by their response: $800 a month! I asked them if they felt they could survive on $800 a month. The reply: but of course we can! I know some people have no options and do work with similar budgets to this number but I feel as though we are failing them, as this is not an income that allows an individual to move forward and support themselves comfortably (and yes, I’ve been there too!).
While we have always been open with our children about our family budget, we clearly weren’t doing a good enough job at teaching them about our income, where the money was going to and how we were putting it away for the future. We were not exposing them enough to payments such as rent, mortgages, taxes and how quickly money tends to fly out of our accounts.
I kept asking myself: how can we get our son more involved? How can I make it easy for him to understand that living on a budget is necessary, but at the same time needs to be realistic and most importantly, how can I make this into something he can understand?
Step One: Lay It All Out There: The Good, the Bad and the Ugly
I took out all our current bills, city taxes, mortgage payments, our bill book, spreadsheets and laid them all out on the table for him. I also included my debt repayment schedule because I want him to know how easy it can be to rely on credit while at school and how this affects you as an adult once you graduate. We work through each bill and each payment, explaining the total amounts owing, basic interest principles and where our money is going to each month.
Step Two: Create a Brand New Budget
Using this new information, we drew up a brand new budget (not because we needed one but because I wanted him to learn about budgets and where our money was going to). Together, we listed all the required monthly payments we had to make (credit card, car loans, mortgage, day care, RRSPs, RESPs, etc.) as well as things such as entertainment and pizza fund money. These items are important too! Plug in those numbers and total them up. I bet your child will be quite surprised with that final number (I know I always am and maybe a tad nauseated too!).
Step Three: Incoming Money
Talking about your income with your child might be hard (I know it is for me), but it’s also important. They need to know that our funds are not endless, as much as they may wish it was so. We never had this conversation with our parents; I still would not be comfortable asking them how much money they make, as it just feels far too personal and invasive. Now you can total up all of your incoming income and payments.
Step Four: The Bottom Line Number
This part is simple: just subtract! Subtract your outgoing from your incoming to get your total remaining amount. I like to leave some in our accounts just in case something happens (the roof leaking, extra soccer payments and fundraising have been some of our last-minute emergencies). You can also chose something to do each month with your child with this amount, maybe a date night?
Your child may have plenty of questions after you finish creating this budget and this is healthy and normal. You want them to question finances with an open mind. This will be an important skill for them later on in life. You also want them to realistic; there’s nothing worse than the shock of financial reality once you move out on your own, especially when combining this with post-secondary education. Yes, they may be able to live on $800 a month, but how hard will it be? Letting our children become a part of the process of the family finances gives them confidence and allows them to understand their opinions matter. You may be surprised as to where they would like to see some of the money allocated to – more play time at our local gym was one that surprised me.
How do you let your child play a role in the family budget?