Even though parents know better, many younger kids seem to think that money grows on trees. Frugal Dad found that he needed a way to teach his 7-year-old daughter about budgeting after she pointed out that they had just been to the bank and he ought to have money to pay for the new Disney DVD she wanted.

What he came up with was a method involving four quarters that represented his paycheck. He gave the four quarters to his daughter and took one away for each of the following:

1. Taxes: even though they will inevitably ask the dreaded, “What are taxes?” question, tell them that the first quarter represents the taxes the government collects on income to pay for schools, roads, libraries and other (helpful and wasteful) things. You can decide how in depth to go when explaining taxes to your little one.
2. Housing: tell them that the second quarter goes to the house, lighting, heat, cable, internet, telephone and all other monthly home expenses.
3. Transportation: the third quarter represents payment for cars, car insurance, gas, maintenance, oil changes, etc. (or whatever constitutes your transportation expenses).
4. Savings, Spending and Giving: explain to them that this money is what is left for remaining goals. After paying for other needs, putting money away in savings, and perhaps giving to charity, the leftover portion of this quarter is what pays for food, entertainment, gifts, etc. The more that’s spent on entertainment, the less you have for food, and so on.

Be sure to check out Frugal Dad’s great full post over at Kids Budget Game Only Four Quarters. Oh, and don’t forget to give the quarters back to your kid!