Teaching Kids About Budgeting

Dear Dr. Bill:

I have a 6-year-old son, and I've heard you talking on the radio about how to teach good financial lessons to kids. You mentioned something called a "10-10-10-70" budget plan. Can you explain what that is and how it works?

— Ben

Dear Ben:

The "10-10-10-70" plan is pretty simple. Whether you pay your child an allowance or pay him for specific chores, have him divide up his earnings in this way:

First, he should set aside 10 percent of his money for a tithe. Explain that the bible tells us that everything we have really belongs to God, and that because we love Him, we give him the "first fruits" of our earnings. In Old Testament days, that meant the farmer would give the biggest, most delicious fruit from his orchard as an offering at the Temple.

Your son should also set aside 10 percent of his money for savings and investment. Take him to a neighborhood bank and open a savings account. Then pick up a kid-friendly book on saving and investing — one that explains how interest compounds over time. When he's a bit older, you might help him open a brokerage account with an online brokerage like Fidelity or E-Trade. Then help him learn about the various options for investing — and the importance of building a diversified portfolio.

The third "10" in the 10-10-10-70 plan should be dedicated to giving. God is clear that we have a responsibility to help the poor, and we should teach our kids that principle from an early age.

You can help your son choose a charity to give his money to — you might want to contact World Vision and Compassion International and ask them to send you information on sponsoring a needy child in a developing country. Perhaps you could make this a family project. Our family sponsors a child in Indonesia with Compassion International and gives to relief projects in Africa through World Vision.

Your son may also want to set aside some of his "giving" money to needs in own community — such as a local rescue mission or a family at your church who is experiencing financial difficulty.

The remaining 70 percent of his money can be used for spending, but teach him to spend wisely — purchasing items that have lasting value rather than cheap toys that will end up in the trash after a few weeks. Also, help him learn the critical concept of "delayed gratification" — that by NOT quickly spending his allowance or chore money on candy or cheap toys, he can save it up to buy things he REALLY wants, like a nice baseball mitt or a new bike.

Ben, let me recommend a great book that will provide you with some practical guidance in teaching your financial responsibility. It's called Your Kids Can Master Their Money by Ron and Judy Blue and Jeremy White. You can learn more about it by contacting Focus on the Family at 1-800-A-FAMILY (1-800-232-6459).

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