How to Teach Your Young Children How to Budget

How can you teach a three year old to budget when they don’t understand money?

My husband and I paid off $70,000 in debt and have changed our beliefs from accumulating stuff to accumulating life experiences.  We wanted to teach our son some of the lessons we’ve learned.

As a mom, I have been trying to figure out how to teach my son about money, and find a system to reward him that doesn’t involve sugar or toys.

Many experts say not to give your children an allowance at this age because they don’t understand it.  I feel like now is the perfect time to teach them what money does, even if they don’t understand the mechanics of it yet.

I’ve also tried hard to reward my children without the use of candy or gifts.  I don’t want them get used to being rewarded with food or stuff.  As an adult I am too used to rewarding myself with food or stuff!

I wanted to teach him about saving, and spending and I also wanted to reward him with more than just praise.  We came up with our own solution – the Chip System.

I’ve been amazed at how well it has been working.

The Chip System

Earning Chips:

He receives chips for doing extra chores around the house, such as cleaning his room, vacuuming with the dust buster and helping with the laundry.

He also can earn chips when he demonstrates good behavior.  Since we go out to see live performances often (my husband is a performer and we travel to his shows often) we wanted something to reward him for being good.  Before the evening out we let him know that if he is a ‘good listener’ for the outing he will receive a chip.

We are able to warn him if he isn’t being a good listener, and the chip system reminds him of why to be a good listener.  Previously we had tried saying that being a good listener makes Momma happy, and if he isn’t a good listener it makes Momma sad, but that apparently wasn’t enough. (surprisingly!)

He has even been so good and helpful at the end of the evening we have decided to give him two chips.

He can then gauge how he acts to the rewards he gets, without giving him candy or stuff.

Spending Chips:

He can spend his chips on different rewards:

Sweet Treat = 1 chip

Video Game (20 min) = 2 chips

Short Video (20 min) = 2 chips

Computer Time (20 min) = 2 chips

Movie (1.5 hours) = 3 chips

Trip to the Park = 6 chips

Trip to the Children’s Museum = 10 chips

Trip to the Movie Theater = 12 chips

Trip Out to Dinner = 12 chips

Spending his chips are very special.  So even if he wants a sweet treat at 7am, if he uses a chip, he gets one.  We do watch videos and have computer time at other times, but he can use the chips for special times when we normally would say no.

Why Use Chips Instead of Money?

  • Reason #1He doesn’t understand the different values of money yet.  A quarter or a penny is the same to him, and while we are still working on learning about money we wanted a system we could use now.
  • Reason #2 – Money isn’t special. Grandma gives him a dollar, or he finds loose change on the ground.  He was given five dollars and left it in his toy box.  We needed something that he would see as special too.
  • Reason #3 – Money isn’t a good reward system for us. We shouldn’t have to pay him to be on his best behavior.  He shouldn’t have to pay us to watch a video at home.  It’s a very fine line, and using a chip system works better for us.

Budgeting with Chips

Currently he is saving his chips.  He either wants to go to the movie theater or buy a rocket ship.

(Note: A rocket ship is not on the list, but he has been adamant that he is saving for a rocket ship.  “A REAL one Momma, not a plastic toy one.”  We’ll have to see how that turns out!)

What has been really interesting is to see his thought process since he can use his chips on anything he wants.  We usually confirm his decision and make sure there is nothing else he wants to use his chips for.

For example, the other day he said he wanted to watch a video, but since it was getting late and we usually don’t watch TV on Monday’s I said no.

He asked: Could I use my chips?

I said: Of course you can, but just remember if you use two chips for a video now that is two less chips you have for going to the movies.  Do you want to use those chips to watch a video now, or do you want to save them for the movies?

He replied: Oh, well.. Momma I really want to go to the movies.

He decided to save the chips, and we played in the sandbox instead.

Our chip reward system has been working very well for us.  It’s been teaching him to save, and make decisions about what things to experience, rather than getting more toys or candy.  (Most parents understand we don’t need any more toys!)  Plus it’s making him responsible for his actions and his rewards.

Leave a comment and let me know what you think about the Chip System, and I would love to hear if you start using it too!

For more from Jaime check out her blog Eventual Millionaire where you can join the journey to become a millionaire by becoming debt free, creating your ideal life style and making your million doing what you love.  If you like what you’ve read then you should consider subscribing to Eventual Millionaire via RSS.

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Published or updated August 25, 2013.


  1. This is a cool idea. Our son is only 11 months so for him the chips would be stuff to either put in his mouth or to throw down the stairs (through the gate), but maybe in a couple of years this might be something we could try.
    .-= Money Beagle´s last blog ..Shopping: The Four Worst Words In The World =-.

    • My daughter is 11 months too! And yes, the chips are not allowed near her otherwise my 3 year old has a fit. She chews everything 🙂

      11 months is a great age isn’t it?

      • Haha, our younger two are about the same age – 10 mos and 3. Sometimes the 3yo shares, other times baby is to go nowhere near his stuff!

  2. Miranda says:

    We did something similar with my son when he was younger, providing him with “coupons”. We allowed him to choose a number of different items, and also had a system where we could “pay” for 1/2 hour of TV. If he wanted to watch one of the movies, instead of just one episode of a show, he had to “save up”. It worked really well, and now that he gets a regular allowance, he makes goals for what he wants (recently it was a particular book), and saves up for it — after paying tithing and setting some money aside in a savings account.
    .-= Miranda´s last blog ..Friday Fun Video: Really?! — Goldman Sachs =-.

    • Glad to hear it worked well for you too!

      Now that your son is older and getting an allowance, how do you deal with TV time? I like having him be able to save up for more if he wants, but I don’t want him to pay us money. 🙂
      .-= Jaime @ Eventual Millionaire´s last blog ..How Much Do Errands REALLY Cost You? =-.

      • When our daughter was younger we created a chart where she earned checks or stickers. When she accumulated enough she could choose a special treat similar to the chip system.

        • We actually did the sticker chart for potty training. He would get to pick a prize from the prize box. We just ended up with more toys from the dollar store though 🙂 But it did work well!

          He seemed to get bored with stickers by the end too. Apparently they aren’t as cool now. (when he was 2 he LOVED them)

  3. I love it!

    When I was in elementary school, my teachers gave out tickets for things like making a 100 and wearing the school colors on Fridays. Every other week, they’d have a garage sale in the lobby and you could use your tickets to buy stuff. I’ve always been a saver, so I saved a ton of tickets by the end of the year, but the last garage sale was cancelled (can’t remember why), so my tickets were going to waste.

    My mom felt so bad for her little 4th grader that she said she’s buy me one big toy in exchange for the tickets. I had the coolest bubble making play set in the world thanks to her…that was a fun summer…

    Since I was already a saver and didn’t really want “stuff”, the ticket system worked for me (I only bought stuff that led to fun experiences like the bubble set or water guns).

    I think your experience system is pretty awesome too, but it wouldn’t have worked as well for me since we already went on picnics and zoo trips pretty regularly since my mom really believed in creating memories every chance she possibly could…even if the family disagreed on 12 hour road trips as being “great memories:..

    Great system though! I kinda’ wish my husband and I had a similar one since he’s a homebody and I want to go picnic and stuff like that…maybe you just suggested a system that would work well for adults too, lol!

    • It’s funny how some people are natural savers. I was the same way!

      We thought about how it would work since we do go on picnics and playgrounds quite often. Plus my husband is a performer ( and we go to shows together a lot.

      So we decided to make it bigger things that we don’t normally do like dinner out and the movie theater, or the museum that’s an hour away. I didn’t want to limit what we already did, but I wanted him to earn special trips.

      That’s a great idea to use it for adults! Haha, a good way to make my husband go hiking with me. He will only go on my birthday or mother’s day!
      .-= Jaime @ Eventual Millionaire´s last blog ..How Much Do Errands REALLY Cost You? =-.

    • Wow, you just reminded me of a system we had in elementary where we earned merits and could trade them in for prizes!

  4. I don’t mean to criticize, I’m just curious: What on earth kind of video games does a three-year-old boy play? And what does “computer time” constitute?

    I’m glad he chose to save his chips and play in the sandbox!
    .-= Abigail´s last blog ..Horrible, horrible freedom! =-.

    • Good question! We have a V-smile which has Dora, and word/counting games. For computer time we go to or other sites that help with reading.

      On PSBkids he can play a word game and then win a ‘prize’ which is a picture we print so he can color.

      We are pretty strict with the time though. He gets one movie per week normally, and video game/computer time twice a week.
      .-= Jaime @ Eventual Millionaire´s last blog ..How Much Do Errands REALLY Cost You? =-.

      • I’ve seen those toddler game systems. Some look interesting. I love the PBSKids site! I’ll go on to print out some dinosaur pics for the big guy to color and such. Haven’t had him playing any of the games though.

  5. Alison@This Wasn't In The Plan says:

    Looks like a great system! I did start using actual money with my son right before he turned four. He became pretty obsessed with wanting to go to a local children’s museum. I told him that we couldn’t just go anytime we wanted because it cost money. I decided to start giving him an allowance and told him that when he saved enough money, he could use it to go to the museum (a child admission is $3 and I gave him about $1 a week). It was around this time that he started to become aware that things cost money and you have to have enough if you want to buy something. I remember one week when we were counting his allowance, he was contemplating using what he had to buy some sidewalk chalk, but then realized that doing so would just mean that it would take more time for him to have enough for another museum trip.

  6. At first glance this seems like a good idea….I have a 4 yr old…I’ll talk to my wife about trying this idea.

  7. Great Ken! Let me know how it works for you. 🙂

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