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How to Budget with Children

Streamline your finances without worrying your kids.

By Elizabeth Weiss McGolerick

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Financial woes are forcing parents to make choices about how they "indulge" their kids these days -- no giant birthday parties, saying goodbye to a pricey extracurricular activity, fewer spur-of-the-moment purchases. Learn how to make the tough decisions -- and have the difficult conversations with your kids -- that keep smart families out of debt.

You don't have to be the bad guy

It's natural to want to shield your kids from financial discomfort in your household. While your children don't need to know all the facts surrounding a job loss, cut wages, or rising bills, the repercussions of these occurrences can affect them.

The way you deliver your messages can make all the difference in creating ongoing worry or temporary disappointment for your child. Gelasia Steed, personal financial expert with Steed Investments, says, "Prioritize extracurricular activities -- they don't need to know you can't afford it. Choices have to be made for many reasons besides money -- time, energy, safety, availability. The key is to help your child decide which activity they prefer in a positive way so they're part of the decision and excited about it."

Sometimes it's not so simple, and children will ask "why?" until they get a satisfactory answer. "If you feel you must give them a reason, be honest," says Steed, but it doesn't have to be brutal honesty. You can let your child know that you're choosing to cut back a little this year but, most of all, reassure them that they've done nothing wrong, and that everyone in your household is altering their lifestyle -- they're not being singled out.

The bright side: The absence of a beloved pastime creates an opportunity for families to spend more time together doing low-cost or free activities. "Your child will have something to look forward to and won't be as upset about missing their activity," adds Steed.

Creative money lessons

Your own financial concerns offer myriad opportunities to educate your children about budgeting and saving, starting with their allowance. Instead of reducing your child's "income," get creative. "Is it possible to have that allowance cover lunches, so you don't necessarily have to lower it?" suggests Steed. "They could choose to take a lunch instead of buy one so they save." To soften the blow, "You could even give them a little raise, but overall your expenses will be less."

Present this idea as a fun -- and perhaps temporary -- educational experience, rather than as a necessity to help save the household money. "When they have to fork over the money themselves, see how much more selective they are about what they buy or just 'have to have,'" says Steed. You've initiated a spending boundary, and your kids learn the value of a dollar without feeling burdened in the process.

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