These tough economic times present a perfect opportunity to go back-to-basics and reinforce with your kids the concepts of budgeting and need vs. want.

When the family budget gets tight, cooperation and understanding are especially important. These are achieved through communication. So explain to your kids a little bit about the economy and the financial state of the household.

Create a Budget

Children as young as age 8 are ready to create their own clothing budgets.
The process may take some time, but the good news is that it will help save some money and teach the valuable concept of “finite” along the way.

Give your child a small notebook and show how to list each item and its price. Now for the fun part -- ask your children what they think they’ll need or want. Again, they should write down the item and its price. (You can see where we’re going with this.)

I recommend you agree to pay for all the “needs” and have your child agree to pay for their “wants.” If the child wants the designer jeans that cost $100 more than a basic pair, the child should pay the additional cost.

Create a rolling quarterly clothing budget with your children. So the clothes they’re buying should last for at least three months.

Make the list specific, detailing how many pairs of jeans your kid expects to need, how many T-shirts, sweatshirts, pairs of underwear, sneakers, etc. Remember, you can mandate where the buying takes place. If you specify Target Stores and your child thinks Neiman-Marcus is more appropriate, you win.

Negotiate

Now the negotiation starts. Ask your child to total all the items on the budget. You may be surprised at the total cost; and you hope they will be as well. Most of your pre-shopping pricing research can be done on the Internet at the sites of national retailers.

After the totals are completed, you decide the final amounts and prices. If your child thinks they “need” five pairs of designer jeans at $150 a pair, you get to say, “No, I’ll pay for the $35 pair.” If you agree to pay for the $35 jeans, they can save up to pay for the more expensive pair.

If your child decides they really want the expensive jeans and agree to pay you back, you can pay for the jeans now – but they don’t get them until they fulfill their I.O.U. They can pay you out of their weekly allowance or work-for-pay system or you can assign them odd jobs to do to pay off the loan over time.

Make It Real

Make the experience as real as possible.

In real life, a person in this situation would sign an IOU or promissory note to the lender. Just write out a simple IOU. Make the repayment period about four weeks.

Remember, keep those jeans hidden in your closet, no peeking. You’ll want the time period to be just long enough to show your little fashion plates how long it takes to earn money to repay an advance. You are also teaching the valuable lesson of deferred gratification.

This approach may not be an easy one, but it is well worth it. Your children can now start to understand the dynamics of planning and budgeting and perhaps best of all - that money doesn’t grow on trees!