Module 7: The 50/30/20 Rule for Kids

 FINANCIAL LITERACY LEARNING RESOURCES 

Budgeting Rule

Objective:In this lesson, children will learn a simple and effective budgeting method called the 50/30/20 rule. This rule helps them divide their income into three main categories: needs, wants, and savings. Understanding this method will make budgeting easier and more manageable for kids.

1. What is the 50/30/20 Rule?

The 50/30/20 rule is a way to help you plan how to spend and save your money. It divides your money into three parts:

• 50% for needs

• 30% for wants

• 20% for savings

This method is simple because it gives clear guidelines on how to use your money wisely. By following this rule, kids can make sure they have enough money for important things, while still enjoying some fun purchases and saving for the future.

2. Breaking Down the 50/30/20 Rule for Kids

A. 50% for Needs

Needs are the most important things you spend your money on. This category covers the essentials, such as:

• School supplies

• Lunch or snacks

• Clothes (when needed)

Since needs are things you must have, this is the biggest part of your budget. Half of your money should go toward these items to make sure you have everything you need to be healthy, comfortable, and ready for school or activities.

B. 30% for Wants

Wants are things that make life fun, but you don’t absolutely need them. This part of the budget is for spending on things you enjoy, such as:

• Toys or games

• Going to the movies

• Extra treats (like candy or ice cream)

• Buying a fun app or accessory for your phone or tablet

It’s important to have money for wants, but it’s also important to not spend all your money on fun things right away. The 30% rule helps you balance having fun with saving and taking care of your needs.

C. 20% for Savings

The last part of your budget is for saving. Saving money is important because it helps you prepare for the future and reach bigger goals. This could include:

• Saving for a new bike, computer, or special toy

• Building up money for emergencies

• Saving for long-term goals like college or a big trip

By putting aside 20% of your income into savings, you make sure you always have money for the things you want in the future, and you also learn how to be patient and responsible with your money.

3. How to Use the 50/30/20 Rule to Create a Simple Budget

Step 1: Figure Out Your Total Income

First, find out how much money you earn in a week or a month. This could be from:

• Allowance

• Chores or small jobs

• Gifts from birthdays or holidays

Let’s say, for example, you earn $40 per month.

Step 2: Divide Your Income Using the 50/30/20 Rule

Now, divide your income into three parts based on the 50/30/20 rule. Here’s how it works with the $40 example:

• 50% for needs: $40 × 50% = $20

• 30% for wants: $40 × 30% = $12

• 20% for savings: $40 × 20% = $8

Step 3: Plan Your Spending and Saving

Now that you’ve divided your income, you can decide how to spend and save it. Here’s an example:

• $20 for needs: You might use this money for school supplies, lunch at school, or a new notebook.

• $12 for wants: You could buy a small toy, get an app, or go to the movies with friends.

• $8 for savings: Put this money in a piggy bank or savings account for future goals, like buying a bike or saving for something special.

4. Why the 50/30/20 Rule is a Good Idea for Kids

The 50/30/20 rule is simple and easy to follow, making it a great way for kids to learn how to manage their money. Some of the benefits include:

A. Teaches Balance

This method helps you balance spending on fun things and taking care of important needs while also saving for the future. You don’t spend all your money on wants, and you make sure to always save some for later.

B. Helps with Smart Spending

When you follow the 50/30/20 rule, you learn to prioritize your needs over your wants. This helps you make smarter spending decisions and avoid wasting money on things you don’t really need.

C. Builds Good Habits

By saving 20% of your income each time, you build the habit of saving money regularly. This helps you prepare for big purchases or unexpected expenses and teaches you responsibility and patience.

5. How to Adjust the 50/30/20 Rule

While the 50/30/20 rule is a great starting point, you can adjust it to fit your situation. For example:

• If you don’t have many needs, you could save more and use the 40/30/30 rule (40% for needs, 30% for wants, 30% for savings).

• If you have a big savings goal, like buying a bike, you might want to save more than 20% and use 50/20/30 instead (50% for needs, 20% for wants, 30% for savings).

The goal is to create a budget that works for you, while still keeping a balance between spending and saving.

6. Fun Ways to Follow the 50/30/20 Rule

Here are some tips to make budgeting with the 50/30/20 rule easy and fun for kids:

A. Use Three Jars or Envelopes

Label three jars or envelopes: one for needs, one for wants, and one for savings. Each time you get money, divide it into these three jars. This way, you can clearly see how much money you have in each category.

B. Create a Savings Chart

Make a chart to track your savings goal. For example, if you’re saving for a new bike that costs $100, draw a chart where you can color in the amount you’ve saved each time. This helps you see your progress and stay motivated to reach your goal.

C. Set a Reward for Sticking to Your Budget

Challenge yourself to stick to your 50/30/20 budget for a few months. If you do a good job, give yourself a reward, like an extra treat or a fun activity.

7. Why Budgeting is an Important Skill for Life

Learning to budget using the 50/30/20 rule isn’t just about managing your allowance or chore money. It’s a skill that will help you throughout your life. Budgeting teaches you how to be responsible, set goals, and make good financial decisions. The earlier you start, the better you’ll become at handling money in the future.

Activity:Have kids create their own 50/30/20 budget. Give them a pretend income (e.g., $50 per month) and ask them to divide it into needs, wants, and savings. Let them share their budget plans with the class and explain their choices.

By the end of this lesson, kids will understand how to use the 50/30/20 rule to manage their money. They will learn to divide their income into needs, wants, and savings, making budgeting simple and fun.