Teaching Money Management

Josh and I choose to follow a budgeting system very similar to what is laid out in the book America's Cheapest Family. I keep the budget on paper because we used a computer based system for years and it just wasn't tangible enough for me to keep me accountable. I briefly explained the system back when I first implemented it.

Sierra knows we have a budget book and has asked me questions about it and I've explained the basic idea to her. She's been dying to have a budget book of her own, but didn't really have any significant amount of money to apply a budget to.

Lately though, she's had a birthday, and the Tooth Fairy, and she and I have also been going to the medical school here in town on a regular basis to be "standardized patients" (we pretend to have a certain ailment and the med students practice their examination and diagnostic skills on us). The standardized patient thing in particular pays quite well. I keep some of the money because I'm the one who really has an involved story to memorize and act up, but if she's the actual patient (which pays more anyway since two of us are "working"), I give her part of the money. All of this has added up to quite a substantial sum in the world of a six year old and I decided it was time to put an end to the "can we go to the store so I can buy something?!?" and help her set up her own budget.

The first thing we did was a fairly quick explanation of percentages (by drawing a circle and showing her what 100%, 50%, 25%, 20%, 10% and 5% are). Then I dictated that she has to put money in savings first and since she is young and doesn't HAVE to buy anything herself, 50% of what she gets will go into savings.

From there, she got to take over. I explained to her what types of categories we have in our budget and she thought about what categories she wanted. She came up with: toys; candy/food; vacation souvenirs; books/learning; crafts/art.

Next I asked her what category was most important to her and which was next important, until we had prioritized the list.

Finally, we split the remaining 50% between the categories she had picked depending on how important the category was to her and how expensive things in that category are.

The final product was the decision that money she gets will be split as follows:
Savings 50%
Books/Learning 20% (p.s. how awesome is it that I have a 6 year old that not only came up with this category on her own, but also made it her number one priority with no input whatsoever from anyone else?!?)
Candy/Food 5%
Crafts/Art 5%
Toys 10%
Vacation Souvenirs 10%

There are some changes I would like to make, but I'd rather focus on her being excited about making and following a plan for her money instead of trying to push too much on her right from the beginning, so aside from the savings thing, I left all the choices up to her this time.