The teenage years are some of the hardest years in anyone’s life. They come with an unpredictable cocktail of physical and emotional changes, along with increased pressure to “grow up,” from friends, family, and society as a whole.
Many parents will agree that raising a teenager feels much like walking a tightrope — on one hand, you’ve got to be strict. On the other, you've not been strict enough.
Sometimes, you just have to do your best and rely on other systems for support, like your teens’ schools. Schools share the responsibility to teach them both theoretical knowledge and practical “real-world” skills.
A problem arises, however, when both parents and the school assume that the other is teaching more than they actually are. This happens with a range of subjects, but this article deals with one in particular — budgeting and financial literacy.
The Risks of Not Teaching Teenagers How To Budget
Teaching teenagers how to budget is important, and yet only 23 out of 50 states require a personal finance course for high school students and 59% of parents feel uncomfortable talking to their children about money.
All across the country, thousands of teenagers are pushed into the “real world” with zero financial literacy to rely on. All they have is whatever knowledge they’ve picked up along the way and Google.
74% of teenagers today say that they’re not confident in their knowledge of personal finance. When these teenagers grow up without anyone teaching them how to budget, you get scenarios like:
- 7.3% of Americans who graduated from college in 2018 defaulted on their student loans within a year.
- 21% of Americans have zero emergency savings.
- One in three Americans has needed to delay major life decisions due to finances.
- On average, Americans pay nearly $600 per year for overdrafts, late fees, and fraud-related charges.
- 83% of parents wish they learned more about finances growing up.
If you’re one of those parents who wish they learned more growing up, this is your chance to make sure your children don’t face the same regrets later on. This also goes for any teachers, mentors, or guardians that play a part in a kid’s upbringing.
Our promise to you in this article is a simple, step-by-step guide for teaching teenagers how to budget money. You don’t even have to worry if your own financial knowledge is lacking — we’re here to guide you through it.
Areas To Focus On
Tackling any subject is easier when you first break it down into parts. By outlining a few key areas, you’ll spend less time worrying about whether or not you missed something.
To teach your teen how to budget, you’ll want to focus on these four areas: earning, spending, saving, and giving.
Earning Money
First off, you can’t start saving money if you don’t earn any.
Most parents give their children an allowance to spend as they please, so your teen likely already knows what it’s like to have money. However, if you haven’t been making them work for it they probably don’t know what it’s like to earn it.
The simplest way to let your children experience earning money is through chores. Now that your kid is a teen rather than a toddler, you can trade “bigger” chores like cooking a meal, taking out the trash, cleaning their room, mowing the lawn, and so on, for money.
This immediately establishes a connection between hard work and earning money — if they don’t do their chores, they don’t earn anything. You could even substitute this system in place of a typical allowance, so they have additional motivation to work and earn.
It’s a win-win scenario for both you and your teen. You get help around the house and they get an extra bit of pocket money.
If your teen is old enough for a part-time job, you can also help them find one. Working for another person and being required to pay taxes (on a high enough salary) will definitely be an eye-opening experience.
Spending Money
The natural reaction to having extra money is wanting to spend it on something that you like. This is fine if you keep it to reasonable levels, but if your teen is prone to overspending and impulse buying, it’s best if you sit them down for a talk.
Ideally, you could save all the money you earn so that one day you’ll be sitting on a pile of riches, but that’s simply unrealistic. Spending money is unavoidable, especially on necessities, but the key here is spending responsibly.
You need to teach your teen how to reign in their impulses and not give in to the idea of “I want it, so I need to buy it.”
Wants and needs are entirely separate things, and the sooner they learn that, the better.
Saving Money
Now, this is something that even adults struggle with, but that doesn’t mean it’s impossible to teach your teen about it.
Guiding them through the process of setting up a bank account is an important part of teaching them how to save. A piggy bank may have been enough for their childhood years, but once they’re on the cusp of becoming adults, they need to know how to navigate a bank account.
Most banks nowadays offer youth accounts with low fees and minimums, designed to help teens build good saving habits early. If you want to set spending limits and track account activity, these youth accounts offer a range of tools and features that allow you to do so.
To help your teen understand long-term saving, talk to them about big goals like going to college or getting a car. These are two highly expensive investments that most teens appreciate the value of.
Work with them to create a budget plan for how much money they need and how many years it will take them to save up. When you break down these big, long-term savings goals into what they need vs. what they have, the importance of saving will be easier to understand.
Giving Money
The last area included here is giving. Teaching teenagers the value of generosity is a wonderful thing, yes, but you need to make sure you don’t go overboard.
Helping others in need is one of the best things you can do with money. However, there are bad actors in the world that take advantage of others’ generosity.
As part of teaching teenagers how to budget, ensure that they know when to extend a helping hand and when to put themselves first. It won’t do them any good to lose the money they’ve worked hard to earn just because they fell victim to a scam or were guilted into giving away more than they could.
Teaching Teenagers How To Budget: Step-by-Step
Here are a few concrete steps you can follow when trying to teach your teenagers the art of budgeting.
1. Start With the Basics
If this is your teen’s first time dealing with a budget, they might have several questions. Start off with basic topics like what a budget is, why it matters, and what it consists of.
At its core, a budget is a plan for spending and saving money. A basic budget will usually span one month to accommodate a typical schedule of income and expenses (e.g. bills, subscriptions).
When you make it a habit to track how much money comes in vs. how much money goes out every month, you can learn from the pattern and figure out what you can save.
Once you’re clear on the basics, you can tackle other topics like how to prepare for unexpected expenses and the importance of emergency funds, saving vs. investing, and the differences between fixed and variable expenses.
2. Help Them Separate Needs and Nice-to-Haves
When making a budget, this might be the part that teens struggle with the most.
A 2019 survey found that the average 16-year-old spends $2,600 a year on things like fast food, trendy clothing, video games, and online shopping.
Every teen wants to fit in with the cool kids and be up to date on the latest trends. This can sometimes be the cause of unnecessary spending.
Teach your teens the value of saving up in the present for an important purchase in the future. For example, they could go on an expensive spring break trip this year, but it might leave them short of a tuition deposit for their dream college.
Help them break down their spending into categories like:
- Food
- Clothing and personal care
- School supplies or extracurricular expenses
- Entertainment (e.g. video games, going out with friends)
- Monthly bills (e.g. car insurance, phone plan)
3. Involve Them in the Household Budget
If you don’t have your own budget, now’s the best time to come up with one. Let your teen feel like they’re a proper member of the household by including them in the discussion of your household budget.
This will not only help them practice their budgeting skills, but it will also give them valuable real-world insight into budget items that they have to deal with eventually, like loans, mortgages, and taxes. Aside from that, it might also help them become more conscious of their spending and how it can affect the household as a whole.
Keep in mind that while you may feel uncomfortable discussing money with your teen, they look to you for guidance. Ensuring that they’re equipped with the right knowledge to navigate the world as an adult should come first.
Make it a habit to hold monthly “budget meetings” where you can both review how well they’ve followed their budget, what they’ve managed to save, or adjustments they may need to make. By checking in regularly, you make it easier for them to keep up their budgeting habits.
4. Support Them With Modern Budgeting Tools
The most basic tools you need for making a budget are just a pen, some paper, and a calculator. If you want to get a bit fancy, you could even get a printed spreadsheet or a ledger.
However, if you don’t take advantage of the many budgeting tools available today, you’re missing out.
Here are examples of apps that you and your teen might find useful:
- BusyKid — A convenient app that allows parents to pay out a weekly allowance based on chores completed and teens to spend and save the money they earn.
- FamZoo — A useful tool for family finance that allows kids, teens, and parents to collaborate on their budget-making. It also includes a range of features like prepaid cards, card activity alerts, automated allowance, and more.
Next Steps
Many teenagers grow up without the financial knowledge to help them make good decisions as adults. You have the power to prevent this.
It takes simple steps like letting them do chores for money or helping them set up a bank account. There’s also sitting down and helping them come up with their own budget, or involving them in the household budget.
By teaching your teen to budget early on, you’re setting them up for success later in life.
If you want to know more about teaching teenagers to budget and develop good financial habits, visit our website. If your teen is interested in saving up for their first car, be sure to check out our “Four Wheels to Freedom” youth savings initiative as part of this year’s Financial Literacy Month.