Teaching kids about money is SO important. This is a great alternative to using a cash allowance system which requires going to the bank often, having exact change, etc. LOVE this.

How To Teach Kids to Track Their Income & Expenses

Teaching kids about money is SO important. This is a great alternative to using a cash allowance system which requires going to the bank often, having exact change, etc. LOVE this.

One of my biggest priorities as a parent is to raise money-smart kids. However, sometimes I get caught up in the day-to-day aspects of teaching my three kids such as trying to get them to help around the house, complete their schoolwork and of course disciplining them when needed.

If you have kids as well, then you know what it’s like to say, “If I’ve said it once, I’ve said it a million times.” I feel this way all the time when it comes to brushing teeth, doing homework or especially, reminding them not to call each other names. And it seems like I’ve talked about tracking expenses about as many times here on the blog.

If I’ve mentioned tracking expenses excessively, it’s because it’s both the starting point of getting your finances turned around and the best way to meet your future financial goals.

I’m meticulous about my own expense tracking to the point of tracking every single purchase down to the penny. And so, I’m not sure why it eluded me until now I need to prioritize teaching my kids to track their own income and expenses.

I refer to the word expenses loosely, because when you’re just a kid (mine are 9, 7 and 3) regular expenses are stuffed animals, Pokemon cards, and Lego sets.

To get a frame of reference on where my kids are with money I asked them one question: “If you had $100 what would you spend it on or save it for?”

Kid #1 (9 years old): “I would save for my education?” (translated to…”Mom, I know you have a money blog so I’ll give you the right answer…”)

Kid #2 (7 years old): “I would buy all the stuff.” He couldn’t expound at the time but was sure that there were many things he needed to buy.

Kid #3 (3 years old): “Pony!” Fortunately, she’s referring to My Little Pony here, because I’m pretty sure a real pony would cost more than a hundred dollars.

Well, you have to start somewhere, right?

A Simple Tracking Sheet

I previously shared a list of 10 simple ways to teach young kids about money and number 8 was to use a tracking sheet for expenses.

I created a simple sheet for my kids to track their spending, saving and giving that incorporates their deposits to each category from their allowances and birthday money. This is used as an alternative to the traditional jars or piggy bank. Why? Because when I tried to use the cash allowance method, I failed miserably every single time.

A system like this is best for kids 6 and over. Younger kids have a difficult time understanding the concept of money when they can’t physically see it. I know this from experience, as my 3-year old keeps asking me “but where’s my money?”.

We recently started using FamZoo, so each kid has their own spending accounts with corresponding prepaid cards (I’ll be sharing more about that in the future!) as well as tracking on saving and giving balances. There’s a fantastic app where kids can log in and see their spending and balances, but my kids are a little young for those additional features.

They use the following sheet to track their inflows and outflows and I help them to ensure it reconciles to their FamZoo account. When they receive their allowance, 80% goes to spending, 10% to saving and 10% to giving. When they spend money, they deduct it from their spending balance.

Download the PDF version of the Kid’s Money Tracker here.

This easily answers questions such as:

  • Do I have enough money to buy ___________________?
  • Can I have this ___________________?
  • How much interest did I earn in my savings account? (note: I give my kids a monthly 1% interest rate on their savings balances)

And you don’t necessarily have to use a separate savings app to make this work for you. If you’re not a fan of doing cash allowances either, you could purchase things directly for your kids and write down the expense on the sheet to remove it from their spending allotment.

What I Want My Kids To Know About Money

Ultimately, by learning to track their income and expenses, there are 5 money lessons that I want them to learn.

Money doesn’t grow on trees

In my house, my kids don’t get toys and gifts just “because”. (Full disclosure: I have the most darling 3-year-old and I can’t say that I have never bought her anything just for being so darn cute…). They have to wait until they have saved up enough of their allowance or birthday money.

Keeping track of a spending account allows them to clearly see how much money they have. Sometimes they’ll have opportunities to do extra jobs beyond their regular chores, which will help them increase their spending balance faster.

You can only spend the same dollar once

Money is a finite resource. This is where prioritizing comes in. While I allow my kids to spend their money on essentially anything they want (within reason and of course safety rules), I try to remind them of something else that they’ve been wanting as well. I do this mostly when they are wanting to spend money on something that I don’t think they’ll really get much enjoyment out of.

Sometimes they listen and other times they don’t (who am I kidding, most of the time they don’t). Once it’s gone, it’s gone though. It’s better to learn this now on toys than in the future on a major purchase like a car!

When they wonder what they spent all of their allowance on, they can come back to their tracking sheet and see exactly where it went. I know this has been helpful for me in my own life as well!

Time is money…when it comes to saving earlier

My kids are required to put 10% of their allowance in their savings accounts, but I may increase this in the future. As I mentioned earlier, I pay my kids a 1% monthly interest rate on their saving balance. Yes, that’s a lot. No, I haven’t personally found a way to earn that rate on my own personal funds. This is done automatically for me within FamZoo.

Because they don’t have a significant amount of savings, I want to ensure that it’s exciting when they check their saving balances at the end of the month and find that by keeping their money untouched in the account, they are able to earn even more money on it. It’s exciting for them to add that interest income line to the saving part of their tracking sheet! At some point (probably soon with my oldest daughter), we’ll add investing into the learning process as well.

Eventually, the process will show them that the earlier they start saving, the more time their money has to compound. I see some spreadsheets in their future.

Unnecessary debt is the enemy of happiness and plastic is still money

If my kids are close to being able to buy something they really want, I don’t loan them the extra money. Instead, they have to wait or occasionally I’ll allow them to do some extra jobs beyond their regular chores to earn money.

We had an experience several months ago where my oldest daughter miscounted how much she was buying versus how much allowance she had and ended up needing to give up one of her toys at the checkout. As much as I wanted to bail her out, I knew she needed to learn that lesson.

One day, far too soon, my little ones will go out in the world and discover a world of people using credit cards to buy things they can’t afford. However, by using prepaid cards for spending instead of just cash, I’m hoping they will link cards to actual money like I’ve done personally. Learning to track their balances now will help prepare them to live within their means in the future.

The greatest happiness you can get from money is by giving it away

It’s innate in all of us, and especially children, to want to experience the joy of helping others. There are limitless ways to contribute to good causes. Choose something that your children are personally interested in, such as animals, children with special needs, or a local park.

It’s been proven that the most happiness you can get from spending money is when you spend money on someone else. Learning to give to others promotes unselfishness, awareness of others and gratefulness. This is how we make the world a better place.

I had a proud mom moment last week when my daughter, who is an avid animal lover, wanted to donate money to a wildlife organization. She didn’t have anywhere near enough in her giving account, so she donated from her spending balance. There was truly nothing she wanted more than to feel like she was helping animals. I hope she is as charitable in the future!

Final Thoughts

It’s easier to learn virtually anything in life if you start learning while you’re young and the project is small. It takes less than 2 minutes for my kids to update their tracking sheet for their allowance and spending each Monday night, the day we’ve chosen for our kids to receive their weekly allowances.

Unfortunately, if you wait to learn to budget and track your expenses until you’re married or have significant expenses, it’s going to be a lot more overwhelming. After all, we’re not born with budgeting skills (well, you know other than me of course). Wanting to spend money comes a lot more naturally to most of us.

Several years into the future, I’m hoping that my kids’ responses about what they would spend $100 on lean more toward saving and investing. However, the true measure of my success will, of course, be the way they view money when they are on their own and their money isn’t coming from the Bank of Mom and Dad.

Do you have a method of tracking expenses for your kids?

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12 Responses

  1. Great advice! We recently started our 4-year-old on a 7-nickel per week allowance. By giving it to him in nickels, we can help him budget it by dividing it between giving, spending, and saving. We’ll wait till he’s a little older to go digital.

  2. Sometimes we ask our little one to make sure he has his wallet when we go to the store. It doesn’t fit in his little pockets so I keep it in mine :-). But at the store, he loves giving money to the cashier and getting change back. You’re right in that when they see the money, they can understand the importance of it better. I will admit we need to do a bit more to encourage him to save it though rather than find ways to spend it.

    1. Our problem was that we never remembered to bring wallets to the store, ever and then we wouldn’t remember how much was in my older kid’s allowance to be able to have them pay me back later. The digital method is great for them-I keep their cards in my wallet and can log in and check balances from anywhere. I should probably keep my 3-year old on the wallet system still but she has a card too for simplicity, since it’s working so well for her older 2 siblings. I’ll have to find some other opportunities to use cash with her.

  3. When I was younger, my parents tried getting me to implement a budget. My mom would always balance her checkbook at the kitchen table, but I didn’t understand the entire process so I didn’t quite get it.

    The methods you outline above make a lot of sense. Thanks for sharing Kathryn! 🙂

    1. I definitely don’t want my kids to start hating the word budget at a young age! My dad paid the bills/balanced the checkbook at my house and I remember when we saw him working on it, we stayed FAR away. Money was always really tight, despite the fact that my parents were extremely frugal. I’m hoping to give my kids a more positive view of money.

  4. Great overview Kathryn! I honestly laughed out loud when I read your 7-year olds response about “buying all of the stuff!” Too funny.

    I also appreciated your breakdown of 80% spending, 10% saving and 10% giving. We’re doing 1/3, 1/3 and 1/3 right now with Zoey. That’s not the way my wife and I live though so I need to update my approach I think.

    Kudos for creating money smart kids. Start ’em early!!

    1. He is my little comedian ;). And, I was thinking I probably don’t get my kids to save quite enough. I’ll probably gradually “encourage” them to bump it up until it’s closer to 20-25%. Zoey seems like she loves her spending/saving/giving system!

  5. This is such a great overview and I love the age my son is right now, 18 months, but can’t wait to teach him about money when it gets older 🙂

    I love that your kids are forced to save 10% of their income each month. Even better is the 1% monthly interest rate. Let me know when a branch opens up in the DC area 🙂

    1. I’ll definitely let you know…at that interest rate though, there may be some banking fees. 🙂
      My kids are totally into learning about money. Especially my 9-year old, who is really excited about saving. It makes it so fun!

  6. FamZoo sounds like a great idea. But if I ever had kids, I don’t think I would get them a phone until they were in high school. For most kids, phones are just a way to waste time and be addicted to a 5.5″ screen. Few kids actually use their phones for any good.

    1. I won’t be getting my kids a phone anytime soon. That’s why I have this handy tracking sheet for them to use to track their balances!

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