Budgeting for Teens: What You Need to Know

Budgeting for Teens Is an Important Money Skill

Teenager working on a budget with 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. Your teenager 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. Use this guide surrounding budgeting to get started if you’re beginning to have those important money talks with your kids.

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 age 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

It helps to keep things simple in the beginning when you're teaching budgeting to teens. You can do that by answering some 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. You can avoid debt or spending more money than you have by forming a plan for where your money goes and comes from. 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's left over, giving the chance to learn from the monthly pattern that presents itself.

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

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

Mention the benefits of having an emergency fund when you walk through the budgeting process with your teen. Teens may experience less financial stress in the wake of unexpected events when they have safety nets.

Involve Your Teen in Money Matters

You can delve deeper into the subject of budgeting once you've covered the basics. 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, and a good many do. Debt.com performed an annual budgeting survey over a five-year period and it found that 86% of adults were indeed keeping a budget in 2022, up from 80% in 2020 and 2021, and from 70% in 2018 and 2019. This could be a good learning opportunity for you and your teen to become budgeting experts if you're one of them.

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 you use and how it compares to other budgeting systems. You might want to cover:

You can explain how each budget method works and why someone might choose one 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. 

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

Teach Your Teen About Wants and Needs

One of the most important steps in teaching your teen about budgeting is discussing the difference between wants and needs. Again, keep it simple. 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. 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. 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 your 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

In its simplest form, a budget 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. 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. 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 to stick with it for the long term. Every individual's budget will vary depending on their 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. You might ask them to meet with 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. FamZoo is a family-wide budgeting tool. 

The Bottom Line

Teaching your teen budgeting matters from a financial perspective. 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 with them about their money goals. For example, if your teen wants a new gaming console, there'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. 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.

  2. National Endowment for Financial Education. "New Year 2021 Survey."

  3. Debt.com. "Americans Are Budgeting More than Ever."

  4. Consumer Financial Protection Bureau. "Teenagers and Saving."