In our previous lesson on Kids and Money, we shared ideas on introducing your kids to the concept of a shared budget and why it is important.
In this lesson, we’re going to dive in to a specific example of how a shared budget works, also touching on the valuable core skill of saving vs. spending.
Shared budgeting lesson for Elementary Age/Middle School kids
First, we want to pair or team up kids who are close in age to each other, if possible. Pairing a 7-year-old with a 14-year-old may be challenging for this lesson!
BASIC RULES: The shared budget (for 2 kids) starts with a minimum of $10 every month. Each child can spend up to half of the monthly budget in any given month. Any unspent portion of the monthly budget is doubled.
HOW IT WORKS: You can quickly see that if each kid spends their half ($5) for the month, the residual is $0, so the pot resets at $10. If each child spends only $2 each, the residual will be $6. By our stated rules, the $6 doubles to $12 starting the next month.
WHAT WILL HAPPEN: Our goal is to reinforce the value of saving vs. spending. First, the kids will realize that if one saves their $5 — and the other spends their $5 — the residual value doubles to $10. This means that the child who tried to save missed out on spending $5 that past month and doesn’t get ahead in the next month.
Remember our game theory examples with the sweepstakes and prisoner’s dilemma? Here’s what this scenario looks like:
- If Child A SPENDS and Child B SAVES, Child A gets to spend $5 this month and next month; Child B spends $0 this month and only has access to $5 next month.
- If Child A SAVES and Child B SPENDS, Child A spends $0 this month and only has access to $5 next month, while Child B gets to spend $5 this month and next month.
- If Child A SPENDS and Child B SPENDS, each child will only have $5 each month to spend. [Nash Equilibrium]
- If Child A SAVES and Child B SAVES, each child will not have any money to spend this month. However, they’ll each have access to $10 next month. [global optimal solution]
WHAT THEY LEARN: If they communicate and work together, they can both choose to SAVE for 2 months straight. That would create a pot of $40, giving them each up to $20 spending cash. That’s a 25% increase over the amount they’d have to spend if they spent only their $5 each month. This scenario teaches communication skills, consideration of others (teamwork), AND delayed gratification through discipline. The parent can, of course, cap the doubling rule once the pot hits $40. Any of these numbers can be massaged to fit your situation. For example, if 3 kids are “sharing the budget” you can change the minimum to something like $12 or $15.
Shared budgeting lesson for teens
While the above scenario may be used, I would suggest the following modifications.
- Open an actual “joint” checking and savings account for the paired kids (or kid/parent or multiple kid team).
- Each, if they are not currently working, should earn a “salary” commensurate with their responsibilities. All salaries go into the one account.
- They’ll be forced to budget, and may find synergies in setting group goals (gaming console, shared bike/car).
Tips for parents on shared budgeting
Putting this idea in action requires deeper involvement on your part, and teaching this lesson may be more challenging than some of the previous lessons.
If you are not able or do not want to offer the salaries/allowances used in the examples, Monopoly money or the like will serve well to illustrate the concepts.
Hold a white elephant party where everyone has to bring either something they make or something from their room to give.