To state the obvious: Parenting is rewarding, but it’s not always easy.
So rest assured, you are not alone if you find your children’s teenage years difficult. They are discovering their independence, and you try not to pull your hair out while they do. Your job is simply to guide them as best you can so that they grow into reasonably well-adjusted adults. Among your many important responsibilities is helping them understand financial independence and how it will help their future.
It doesn’t matter if your teen is most likely to earn multiple degrees after high school, transition from class clown to the next big name in comedy, or wait until they go out into the world to figure out what they want to be when they grow up. They will be on the road to financial independence if they have learned and developed important money management skills and habits before leaving home.
One such skill is creating a budget. It̵
7;s perhaps the most crucial money skill your teen should learn. With it, they will know how to manage their money to save, secure their financial future and maybe even build wealth.Keep reading to learn more about budgeting tips for teens and how to teach your teen to create and manage a budget. And who knows, you might even learn a few things in the process.
Budgeting for Teens: Shaping Spending and Saving Habits
According to investment bank Piper Sandler’s annual Taking Stock With Teens® 2023 survey, the average teen spent about $2,400 in 2022, with 60% of that money coming from parents. It might only amount to $200 a month, but the good or bad spending habits teens develop with that $200 a month can stick with them into adulthood. Helping them build responsible spending and saving habits will help them grow into financially responsible and independent adults.
The financial responsibilities of ordinary teenagers
During adolescence, children should take on some financial responsibility to help prepare them for managing money in adulthood. Ideally, they should have some expenses that they are responsible for and some money to work towards.
Even if most of your teen’s money comes from you, you can still get them to pay for some personal expenses, like clothes, entertainment, or that all-important first date. If they use your car, they can contribute to the gas. Savings goals can include putting money aside for college or a car of your own.
Common challenges for teenagers
Keeping Up With the Joneses is not just an adult phenomenon. Teens face some of the same money challenges as adults.
It’s tough to deal with peer pressure to keep up financially with classmates who always seem to have the newest and coolest things. They must weigh spending decisions based on their wants and needs and in the process learn to prioritize needs. Sometimes they learn the hard way that spending money on one thing means you don’t have money for something else.
Discuss these challenges with your teen and give them the financial tools they need to make better money decisions. Help them open a savings and checking account so they can start building a savings habit and learn how to manage a checking account. Most importantly, teach them how to manage their money with a budget.
Create a budget with your teen
There is no better tool to control your personal finances than a budget. A teenager who budgets and saves is well positioned to thrive financially as an adult. Your teen will likely have a simple budget, but it can teach them just as much about budgeting as a complex budget and should include the following three categories:
1. Sources of income
Your teen’s budget should start with income. They may receive money from gifts, a grant or a job, but they should treat each source as income and include it in the budget. Ideally, your teen will have a regular source of income to budget, whether it comes from an allowance or a job, to develop this critical skill and habit.
2. Savings for financial goals
Another great money habit for a teen to develop is setting and saving for money goals. Help your teen set at least one short-term and one long-term goal that they will build into their budget. Short-term goals might be saving for a prom dress or a new video game. Long-term goals may include saving for a car or college.
By including their financial goals as budget categories, you can teach them the concept of “pay yourself first.” This concept dictates that you use your income to meet monthly savings goals before paying bills or buying anything. Teaching your teen to save first and then spend based on their budget will serve them much better now and in the future.
3. Costs
Your teen’s budget should include essential and non-essential expenses so they can learn to budget for both wants and needs. Just as “paying yourself first” is a habit your teen should form, they should habitually prioritize essential spending over discretionary spending.
Also introduce the concept of recurring bills. Your teen should understand that many bills are due each month and that a budget can help them effectively plan for those bills.
Finally, help them understand that some bills are unexpected but still have to be paid. Teach them how an emergency fund can help cover those unplanned expenses when there isn’t enough money in the budget. Show them how to gradually build up an emergency fund a little each month and explain what types of expenses constitute an emergency, such as a car repair, and those that do not, such as concert tickets.
If your teen doesn’t have any essential or recurring bills, create some for them. You can require them to contribute $15 each month to their cell phone or pay for their Spotify subscription. They can pay for their gas if they have a car (or use yours). You can even have them treat a monthly deposit to an emergency fund as an important recurring bill.
Once you have created some expenses for them, show them how they will fit them into the budget.
Manage and review the teen budget
A budget won’t teach your teen much about money management if they don’t update and review it regularly.
Budget tool
Your teen will need some way to track and manage their budget. One option is to start them with a budget that they manage on paper. However, a spreadsheet or budgeting app that can automate some of the budgeting process may work better for today’s tech-savvy teens. Ultimately, the best budgeting tool is the one your teen will actually use.
Budgeting habits
The budgeting tool your teen uses is less important than keeping the budget active and avoiding the set-and-forget mentality. Not checking and updating a budget consistently can lead to overspending and undersaving. Make sure your teen knows that the purpose of a budget is to track and review expenses and how often to complete these tasks.
Update the budget regularly: When your teenager receives the monthly allowance, weekly pay or birthday allowance, they should update the budget or check their budget app to ensure it is up to date. When money is moved to a savings account or they spend on something, they should update the budget.
When they do, let them determine if they’re staying on budget and how much they have left to spend for the month. The more aware they are of income and expenses, the less likely they are to overspend or miss paying a bill.
Review the budget each month: Have your teen review their budget regularly, at least once a month. Schedule dates and times when you will sit down together for a 15 or 30 minute budgeting session. Let them set a reminder on their phone so they don’t forget.
Reviewing the budget at your teen’s favorite coffee shop or pizza place can make it more fun and less of a chore. If food and coffee don’t attract them, maybe reward them with extra time to do something they enjoy. The important thing is to emphasize good habits and show them that this is not something they should be afraid to do.
At your meetings, ask them questions that can guide them as they review their budget:
- Did you reach your savings goals?
- Did you pay all your essential expenses?
- Is there money left over, and if so, what should be done with it?
- Were there any purchases where the money could have been better spent in other ways, or used more efficiently?
Ideally, this should be an ongoing process that happens a few times (during and at the end of each month) until you feel your teen is ready to do the budget review without your guidance.
Teach your teen how to budget their way to financial independence
There are probably many things you hope to teach your teen before they head out into the world, but one of the most important is the ability to manage and grow their money. Although your teen’s initial budget may be simple, you should begin to discuss the many budget categories they will eventually add at some point, such as transportation, housing and living expenses, and insurance.
Share your own financial experiences with your teen, both the good and the bad, and the lessons you’ve learned along the way. Show them how specific money tools, like a budget, helped you financially—or how not having one made life difficult.
Ideally, one of the useful money tools you can discuss is life insurance. Your teen may not need life insurance yet, but they’ll appreciate knowing you’re covered, and it’ll teach them to consider it themselves when the time comes. And if you’re not already covered, life insurance from Haven Life can provide for your family if something happens to you.
You can get a free quote online and see that there are policies (and prices) that fit most budgets. Plus, you’ll be setting a good example for your teen—trust us, they’ll appreciate it one day.
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