Teaching your teen about money isn’t easy. But if you do it right, you can set them up for a lifetime of financial success. What parent wouldn’t want that?
Here's how to teach a teenager to budget money.
Start With the Basics
Does your teen know the difference between expected and actual expenses? Short-term and long-term expenses? How to save for a short-term and a long-term financial goal or how to resist the urge to spend more than they earn? How to prioritize expenses based on value and necessity? If not, start there.
They should also understand the basics of pre- and post-tax income and the basics of interest. If they own any investments (like that stock or bond Grandma bought them for their birthday last year), they should at least be familiar with the basics of the stock market.
If they don’t already have one, this is a great time to open a bank account for your child. You should be listed as the guardian on the account. That way, you can keep tabs on spending, potential overdrafts, fees, and any other issues. Then, help them master skills like balancing a checkbook (old-school, but still useful), using a debit card, and keeping track of their spending via the bank’s online portal or app.
Have a kid who is excelling at money management already? Consider opening a low-limit credit card for them, then helping them responsibly use—and pay off—the balance each month. Remember, it’s never too early to start building good credit.
Get Them Involved
Let them sit in on family money discussions regarding the budget. Start simply and don’t expect them to understand everything right away. For example, an in-depth meeting with your financial planner about your investment portfolio may be too much (and too long) for them to handle unless you have a math whiz on your hands.
But allow them to participate in your monthly budgeting meeting with your spouse—or sit down with them and go through your budget, line-by-line if you’re a single parent.
The idea is to foster an understanding of how much money comes in, how it’s divided among bills, spending, investments, and other expenses like education. Then, they can see how much is left for non-discretionary spending (groceries, toiletries, medical expenses), and finally, how much is left for discretionary spending (eating out, buying clothing, etc.). Teach your teen that not all expense items are created equal and that some are essential, some are an investment in the future, like education, and others are for fun. These latter are fine, but come last.
Using this method, you can help them see that every dollar in your budget is accounted for. And once the money is gone, there will be no more spending that month. This will show them the importance of not spending more than they earn, which is a bad financial habit.
Remember, the best way to teach teens about budgeting is for them to see a real-life example of how it works, then put what they learned into practice each month.
Help Them Manage Their Own Money
Whether it’s an allowance you give them or earnings from a part-time job, it’s your teen likely has some cash flow. While this amount may seem nominal, don’t just let them spend it all—it’s the perfect opportunity to have your teen set their own budget.
Help them decide different budgeting categories and how much of their money to put in each. They could develop budget categories like clothing, going out with friends, gas money, savings, and giving to a favorite charity.
Consider it a win if your teen successfully divides their money into three or four separate categories and doesn't ask you for money the next time they’re going out to grab pizza with friends, because they’ve already set aside that cash.
Have Them Stick to a Budget
Try this sample budget to help your teen master their money.
This sample budget includes columns for both expected amounts as well as actual spending/earnings so your teen can get a real-time snapshot of how well they are sticking to their budget and how close they are to achieving their monthly goals.
Monthly goals could include saving a certain amount ($1,000 is a good benchmark), taking a trip, or going to a big concert with friends. Keep in mind that this is a simple template. Your teen can add sections for other expenses, earnings, or month-over-month changes as they start to get more advanced. This template can also be reused each month.