How To Teach Your Teen About Budgeting

Budgeting for Teens Is an Important Money Skill

Teenager working on a budget with her mother's help

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Teaching kids how to budget is one of the most important money lessons you can impart as a parent or guardian. If you have teenagers, they might already be earning money of their own. So why not teach them how to manage it responsibly?

An estimated 56% of teens have talked about finances with their parents, according to a 2021 Citizens Bank Junior Achievement Survey. However, only a third of the class of 2020 high school graduates said being financially independent of their parents within 10 years of graduation is a financial goal.

Budgeting can help your teen reach financial independence with ease. If you’re just starting to have those important money talks with your kids, use this guide surrounding budgeting to get started. 

Key Takeaways

  • Budgeting for teens is important for helping them learn how to manage spending and develop good money habits.
  • Teaching teens the basics of budgeting can begin as early as 13 or when teens start earning money of their own through a part-time job or an allowance. 
  • Discussing the difference between needs and wants can be a fundamental part of how to teach your teen budgeting. 
  • Using free financial tools, such as budgeting apps or prepaid debit cards for teens, can make it easier to teach the basics of how to budget. 

Start With the Basics of Budgeting

When teaching budgeting to teens, it helps to keep things simple in the beginning. You can do that by answering basic questions, such as:

  • What is a budget?
  • Why does budgeting matter?
  • What does a budget consist of?

At a minimum, teens should understand that a budget is a plan for spending money each month. By having a plan for where your money goes and comes from, you can avoid debt or spending more money than you have. In its simplest form, the two most essential elements required to make a budget are income and expenses. Teens should know that you track your income, expenses, and what is left over, giving you the chance to learn from the monthly pattern that presents itself.

Once you cover the basics, you can get into more detailed budgeting discussions. For example, you may want to touch on: 

It’s also important to discuss how unexpected expenses or events can impact one’s budget. In 2020, for example, seven in 10 experienced financial setbacks as a result of the global health crisis, according to the National Endowment for Financial Education.

When you walk through the budgeting process with your teen, mention the benefits of having an emergency fund. With a safety net, teens may experience less financial stress in the wake of unexpected events.

Involve Your Teen in Money Matters

Once you've covered the basics, you can delve deeper into the subject of budgeting. The best way to do that may be to lead by example and share the details of your own budget. Children and teens are highly observant, often looking to their parents for guidance in all matters, including financial health. 

This assumes, of course, that you maintain one. According to the National Foundation for Credit Counseling, 53% of adults don't keep a budget regularly, as of 2020 data. If you're one of them, then this could be a good learning opportunity for you and your teen to become budgeting experts.

For example, you and your teen can work together to create a list of your household's monthly expenses. Then your teen can go through them to categorize expenses accordingly. This is where you can explore what it means to have fixed or variable expenses, what discretionary spending means, and where taxes come in

You can also discuss the budgeting method that you use and how it compares to other budgeting systems. For instance, you might want to cover:

You can explain how each budget method works and why someone might choose one budgeting system over another. You can then have your teen create a sample budget for themselves. 

This process is helpful because teen budgets are different from adult budgets. Your teen likely isn't budgeting for a mortgage payment or student loan payments just yet and they aren't earning a yearly salary. But they can still benefit from learning how to divide up the money they earn from doing chores or a part-time job to cover their expenses. 

Instead of using pen and paper on your own, consider downloading free teen budgeting worksheets to help your child create a sample budget.

Teach Your Teen About Wants and Needs

One of the most important steps in how to teach your teen about budgeting is discussing the difference between wants and needs. Again, keep it simple and explain that a need is something that's required to survive, such as rent payments, while a want is something you can live without, like a Netflix subscription.

There are different ways to help teens understand this concept. For example, you might start by going through your budget with them or the budget they made for themselves and categorizing each expense. 

For each expense on the list, ask them: Is this something you can live without? This process can help them sort through needs and wants on paper. But you can also use real-world examples or experiences. For instance, back-to-school shopping can be a chance to discuss what's necessary and what's not if you have a limited budget.

The main goal should be helping teens learn how to prioritize spending so that their needs are met. You can also discuss the consequences of not distinguishing between needs and wants. This is a great way to segue into talking about debt and the risks of spending with a credit card versus a debit card.

Opening a teen checking account or giving teens a prepaid debit card can give them a chance to practice prioritizing wants and needs as they spend money on their own.

Helping Your Teen Choose Simple Budget Categories

A budget in its simplest form is a list of expenses deducted from income. But breaking a budget down into categories can help teens decide exactly what they want to spend money on. 

Remember, teen budgets are unique because they're focused around the expenses teens are most likely to have. So sit down with your teen and talk about which categories they want to include. 

The Balance’s free budgeting calculator may be helpful to offer examples of what a basic budget looks like. 

Your teen's budget may include:

  • Clothing
  • Personal care
  • Car insurance, if they're responsible for paying it
  • Cell phone coverage, if they're responsible for that
  • Gas money
  • Entertainment or going out with friends
  • Food
  • School supplies or extracurricular activities that you don't pay for

In addition to their regular expenses, all teenagers should include savings as a budget category. Specifically, you can talk about how much they should aim to save each month, the difference between short-term and long-term savings goals, and how compound interest can help them grow their savings. 

Once your teen has their budget categories, they can decide how much of their money they want to spend for each one.

So, for example, they might have five budget categories: Clothing, gas, going out with friends, school supplies, and saving. You can help them decide how to split up their money among them. As an example, their final budget might look like this:

  • Clothing: 25%
  • Gas: 15%
  • Going out with friends: 40%
  • School supplies: 10%
  • Saving: 10%

The idea with budgeting for teens is to make it actionable and relevant to them so they're encouraged to not only make a budget but stick with it for the long term. Every individual's budget will vary depending on personal circumstances.

Give Your Teen the Tools They Need To Budget

You can make budgeting for teens more interesting and engaging by providing them with some basic tools to get started. For example, a spreadsheet, budgeting worksheet, or budgeting app can all be helpful for keeping teens connected with their money. 

Once your teen has begun the path to budgeting, keep the money discussion going. For example, you might ask them to meet you once a month to talk about how their budget is going and what adjustments they might need to make if any. This can make it easier for them to get into a regular budgeting habit. 

Great tools for budgeting for teens include the apps Wally and BusyKid, which keep track of chores and give your teen a direct deposit once they’re completed, and FamZoo, a family-wide budgeting tool. 

The Bottom Line

From a financial perspective, teaching your teen budgeting matters. After all, you want them to be financially independent adults who are capable of managing money. Talking about budgeting with teens early and often can help them to build a solid financial foundation. 

Frequently Asked Questions (FAQs)

How do I get a teen interested in budgeting?

The easiest way to get a teen interested in budgeting is to talk to them about their money goals. For example, if your teen wants a new gaming console, that's your chance to talk to them about how to budget and save up for it. 

Otherwise, you might be able to get a teen interested in budgeting by using tech tools. For example, getting them a prepaid debit card or having them download a budgeting app for teens can help them feel in control of their money. 

How can teens save money?

If your teen earns money from chores, a part-time job, or a side hustle, you can help them save it by encouraging them to include saving in their budget. The Consumer Financial Protection Bureau encourages teens to save 10% of their income to start. You can also make saving easier for them by setting them up with a teen checking account and a linked teen savings account.

Article Sources

  1. Junior Achievement. "2021 JA Teens & Personal Finance Survey," Page 3. Accessed Sept. 20, 2021. 

  2. National Endowment for Financial Education. "New Year 2021 Survey." Accessed Sept. 20, 2021.

  3.  National Foundation for Credit Counseling. "2020 Consumer Financial Literacy Survey." Accessed Sept. 20, 2021.

  4. Consumer Financial Protection Bureau. "Teenagers and Saving." Accessed Sept. 20, 2021.