Let’s leverage the news, shall we? Ask your kids if they know what a budget deficit is. They’ve seen the headlines. Tell them they need to know because it’s the reason the recession is going to take longer to end than anyone would like.
Ask them if they want a personal recession in their own lives, one that follows them around for decades, or would they like to have a harmonious, prosperous relationship to money.
You not only need to teach your college bound kid to create a budget, but your teens need one, too, so by the time they get to college they’ll be ahead of the game—or at least not behind. So if you have both college students and teens in your family, don’t spare anyone.
Summer is the perfect time because you can supervise. (I love supervising.) Here’s the budget making plan to do with your kids.
1. Okay, first things first. The glossary of terms:
Budget deficit: When what you spend is more than what you take in. Bad.
Budget surplus: When what you spend is less than what you take in. Good.
So they know what the goal is: A budget surplus.
And don’t let any of your smarty pants kids tell you that certain economists don’t believe a budget surplus is good for the nation because it holds up lending etc. Tell them a balanced budget is bad for individuals because you’ll never get to buy any of the really good stuff—cars, exceptional electronics, fabulous vacations.
2. Play one round of Budget Surplus Trivia. Ask your kids to guess when the last time was that the U.S. government had a budget surplus. Then have them Google the question. They’ll start reading, find out it was 2000 under Bill Clinton, they’ll read a little more, and then you’ll have them ripe for creating their own budget: Nine years and counting, and no sign of a balanced budget, much less a surplus. The deficit is widening. Tell them if that happened to an individual over such a long period of time, they’d be in so much debt, with no money to pay it off, they’d have to file for bankruptcy, which ruins your financial life. Always a good idea, I think, to bring the news home.
3. Get a simple budget software program, or if your kid’s checking account has an online budget program, they can use that. I do recommend that every kid doing a budget has a checking account with debit card, so they can use the online line item tracking. It makes the whole budget concept come into focus, and stay in focus.
4. Creating the actual budget. First, have the kids write down life expenses. Here’s the list:
1. Tuition
2. Rent
3. Debt
4. Taxes
5. Utilities
6. Phone
7. Insurance
8. Car payments/transportation/gas
9. Food
10. Clothing
11. Health/Fitness/Grooming
12. Entertainment
13. Savings
Now, even though your teen, or even your college student, won’t have all these line items, make them include all them anyway. These expenses are coming for them in life at some point, so knowing the spectrum now is a good thing. Just have them put zeros for the things not applicable. Maybe by the time they’re in the budget habit, they’ll want to keep that Debt number at zero.
Another interesting exercise is to have your kids put them in order of importance. Write down the different items on index cards, place them on the table. Have them order them according to priority. They should, of course, come up with Entertainment at the bottom, and not, say, before Rent.
5. Then have them write down all the sources of income per month. You may well be a source of income, specifically earmarked for certain items. For instance, if their college apartment rent is $200 per month, then you are counted as the source of rental income.
6. Have the kids go at it. First, they have to put the earmarked income next to the appropriate line item, creating a zero balance. Next, the leftover lump of their income—just allowance, allowance and a job, whatever it is—is applied, as they see fit. Most of this will be discretionary income, for entertainment and savings, upgrades to certain line items, such as a cooler cell phone. Explain what discretionary is. That’s your spending money.
Have the kids think of creative ways of using discretionary income to make their money grow. This is where Saving Wisely comes in.
7. More revenue, less expenses. When they have their budget finished, they’ll see whether they’re at deficit, balance, or surplus. Deficit means parents are supplying the gap, of course, but do explain that without that safety net, they’d be going deeper and deeper into debt, if that choice is even available to them. Credit is harder to get these days.
So the final exercise is to have them see where some expenses could be cut, either to reduce deficit or to increase savings, which is not just for earning more money, but also to buffer emergencies, in case some other revenue is lost, or a new expense comes into play.
And, of course, could they earn more money to enhance the revenue side. This may not be possible, given school load, but do show them that being a good earner goes a long way to peace of mind, but only when you have a smart approach to expenses.
I do guarantee this process will be sobering for them, and make them thoughtful. Some may argue that it’s too much stress for them. I don’t think so. We’ll be lucky if they don’t forget all about it two hours later, knowing the safety net is there. And check out this conversational guide to teen budgeting. It will help shape your process, and theirs. Have teens do the budget for all three months of the summer, and then keep it going.
Any other budget ideas out there?
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