Spending habits changed drastically during the worst of the COVID pandemic, making today a time to re-evaluate family budgets. Many parents found themselves increasing spending on their children both out of necessity and in an attempt to placate kids during such uncertain times. As we emerge from the pandemic into an economy with high inflation, many families need to reassess their overall budget and expenses. Here we discuss how to objectively determine if and where you need to cut back on expenses, how to explain this to your kids, and how to realign your spending with your family’s financial values and goals.
Unexpected Childcare and School Expenses
When daycares and schools began closing in March 2020, parents suddenly found themselves in uncharted waters. Working parents had to figure out how they could work from home and watch their children at the same time.
Many families had to switch to in-home childcare while they waited for daycare and schools to re-open for younger children. In most cases, in-home care was significantly more expensive, but if both parents wanted to continue working, they had no choice but to bear the expense. Families with school-age children found themselves needing to unexpectedly buy computers for each child to attend virtual school, in addition to desks and chairs to create a home-based classroom.
As schools remained closed, parents started weighing options that would enable them to return to the office and/or prevent their kids from falling behind academically. Some families paid private tutors to help bridge the gap between online learning and grade-level benchmarks. Others made the financial commitment to switch to private schools, many of which were re-opening their doors for the new school year while public schools remained shuttered.
Relaxing the Rules
As days of quarantine turned into weeks and months, and normal childhood routines were disrupted, exhausted parents were becoming increasingly desperate to find ways to entertain and comfort their kids. That’s where many family rules related to spending went out the window.
A parent needing to hold a virtual meeting for work could buy some quiet time by presenting their child with a brand-new toy or encouraging screen time. Socially isolated kids could interact with friends through a paid subscription to a gaming service or a new electronic device. Since restaurants were closed for indoor service, food delivery apps made it easy to bring the restaurant to you. And finally, the family could bond by bringing home a new pet (and all the supplies that goes along with it).
As various one-time occurrences, family expenses or indulgences weren’t a big deal. The problem is that two and a half years later, many of these treats accumulated and have become expected. Parents are discovering that the rules and values they set in place a few years ago have disappeared.
Getting Back on Track in an Inflationary Environment
As we emerge from COVID restrictions and prices are at all-time highs, now is the ideal time to get your family’s budget back on track. Some expenses, such as toys and meal delivery, will be easier to tackle. Other commitments like pets or private school tuition, will necessitate more thoughtful consideration.
Before speaking with your kids, take the time to thoroughly review your expenses for the past few years, so that you can compare how your spending has changed over time. Break down expenditures by category so you can see where your money is going. Also address the following:
- Has your income changed?
- Have you been able to meet your savings goals?
- Is inflation throughout your budget infringing upon savings and other goals?
- Are you demonstrating to your kids the values important to you such as exhibiting financial discipline, saving for college, or supporting philanthropy for example?
Once you know how much you need to alter spending, begin having family conversations about money. Introduce the idea that as a family, you need to redefine the rules of how you spend money. Explain why you need or want to cut back and determine what your priorities are as a family.
Revisit the Fundamentals
Regardless of your child’s age, remind them of key financial literacy fundamentals:
- Money is earned by working.
- The difference between wants vs. needs.
- Savings are essential for short- and long-term goals.
Kids may not have a realistic sense of how much something costs. When shopping, point out the price tag. Discuss whether the item is relatively expensive or inexpensive. Have your child help you compare prices among different brands and talk about what prices fall within your family budget.
Explain to older kids the basics of increasing prices and inflation. You can cite a specific example and say “remember we paid $x for this last time and now it costs $y. Is it worth it?” Also explain the important concept of tradeoff decisions, particularly due to inflation. The decision to make one purchase might require foregoing another.
Redefine Who Pays for Treats
If your child has gotten used to getting more toys and treats, they won’t understand if you suddenly say “no.” Your child’s age will determine how you help them adapt.
If you haven’t already started giving your kids an allowance, begin doing so to give your child the experience of spending money and learning how to save. For younger kids, make sure they understand dollars and cents. Begin requiring your child to make their own small purchases and choose a fun way for them to track their savings. You might wish to split the costs of treats until your child has had a chance to save more money. Depending on their age and how much allowance they get, decide when they will be fully responsible for paying for certain items.
Parents of older kids should determine what they will pay for and what their child should be covering. Some parents will pay for clothing, lessons, and sports equipment but their child has to pay for trips to the mall, movies, and meals with friends. Encourage your child to do small jobs for neighbors or get a part-time job if they want more spending money.
Making the Big Decisions
Deciding to cut back on gourmet coffee is one thing, but what if a big-ticket item, such as private school tuition, a new car payment, or a second home mortgage is affecting your family’s financial health? Knowing your priorities will help you determine how to move forward. While the specifics will change depending on the particular situation, ask yourself these general questions:
- Is the value of what the item is bringing to the family worth the cost?
- Are you prepared and can you afford to make payments on this item long-term?
- If you had it to do over, would you still make this financial commitment?
If you answered yes to these questions, then you need to decide what sacrifices to make to off-set the cost. This may mean looking for a higher-paying job, down-sizing another aspect of your lifestyle, or asking family members to find part-time work. If you answered no, then it’s time to begin the process of making a change.
Deciding to cut back on spending doesn’t mean kids can no longer have fun.
- Go to the local library and bring home a new selection of books.
- Visit a new playground.
- Learn how to cook your favorite restaurant meals at home.
- Enjoy the great outdoors.
- Take advantage of all the free offerings near you.
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