Most teenagers have a casual relationship with money. They’ve spent their entire lives having someone else — usually their parents — pay for what they need and want. But budgeting for teens isn’t an easy subject for parents to teach.
Teens still have to learn how to make a budget before they leave the nest. You’re likely to encounter various challenges when talking to teens about money, but there are positive ways to teach them the concept of budgeting and implement strategies that will work for the rest of their lives.
Why Is Teaching Budgeting for Teens So Difficult?
Why is it so hard for teens to make responsible decisions? Biology, for one thing.
The prefrontal cortex is the part of the brain responsible for decision-making and association. However, it’s also the part that takes the longest to mature. Scientists have found the prefrontal cortex fully develops after a human reaches their mid-twenties. Even the most skilled teachers run into this complication, let alone parents.
On top of that, teens are surrounded and influenced by a lot of outside factors. Consumer culture, more pervasive now than ever, has made personal branding a huge focus for many of them. Add traditional peer pressure into that mix, and the messages the teen brain receives are almost deafening.
The natural impulsiveness of teens and peer pressure often complicates the process of learning budgeting for teens.
Right off the bat, parents face a solid wall of resistance that isn’t really their children’s fault. But when they’re on the cusp of adulthood, teens need to learn about saving money and establishing good spending habits.
They have a lot of noise to contend with, and physical development makes decisions even harder for them to make. How can parents get through?
Why Is Teaching Teens Budgeting Tips So Important?
With some rare exceptions, teenagers don’t face the complex decisions about money that adults have to manage. Many receive allowances they spend on pursuing fun stuff. That’s normal and intrinsically valuable for their development.
Adults have to transition those attitudes about money when they become independent. Mortgages, credit cards, car payments, investments, retirement savings, and emergency funds are some of the budgeting elements adults face every day. Teenagers don’t have to deal with these things, but they need to be prepared for them.
Attaining financial literacy is no easier than acquiring other kinds of knowledge. Still, it’s the backbone to managing wealth and security when you reach adulthood. When introducing the concept of a budget for teens, you need to be practical and considerate of their situation and proceed with care.
Introducing Budgeting Concepts to Teenagers
Researchers suggest that it’s never too early to talk about money with children. Even 5-year-olds can understand the concept of saving money. When they hit their preteen years, they encounter more spending options and slightly more challenging decisions.
The tween years are often the ideal time to start introducing the concept of budgeting for teens. When preadolescents have money to spend, parents can integrate some of the more intricate financial concepts with their children’s reality.
Here are some practical methods and approaches to start with when they become aware teenagers.
Teach Them to Understand Income
Regardless of age, the first step in every financial decision is knowing how much money you make and where it comes from. With teenagers, income often comes in the form of a weekly or monthly allowance. Some earn money by working part-time or selling goods online. Some also receive cash gifts for birthdays and holidays.
These forms of income parallel how adults earn money — through full-time jobs, investments, reselling, and so forth. Teenagers must understand this: How they make money now isn’t that different from how they will in the future. It’ll just be on a much larger scale.
But for now, focusing on this first step is very important in the journey of budgeting for teens. Have them compute all the money they make from allowances, chores, work, and other sources. Add the money they get from all these sources in a single month. That figure is their first monthly income statement.
Help Them Understand Regular Expenses
Next comes the other side of the coin (pun intended): Where does your teen’s money go? This is the part where parents can introduce a few expenses that might cross over with their children.
Adults understand regular expenses such as rent, mortgage, car payments, insurance, utility bills, etc. On top of entertainment, teenagers may be responsible for adult-like expenses such as gas, clothing, transportation, and even their share of the family’s mobile phone bill. As with income, have your teen make a monthly expense report including all their must-haves and must-dos.
At this point, your teenager can subtract their monthly expenses from their monthly income. Do they have enough money to cover their needs, or do they need a little more? This move explains the concept of net worth, even if they just have $2 left.
Make Sure They Understand Savings
Now comes the point to talk about saving money and setting savings goals. First off, let your teen know that many adults have massive problems wrapping their heads around the concept of savings. That will hopefully humanize you and make your teenager feel like they’re not being “talked down to.”
Make sure they understand the point of savings: to have enough money to afford a major investment. Compare your savings for a house, retirement, car, or vacation to your teen’s savings for college, entertainment, transportation, or travel. Explain how their savings goals parallel yours.
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Create a Budget
With all those concepts firmly understood, you’re ready to tackle what should be at the heart of every family’s financial strategy: the monthly budget. The first step is accounting for expenses in two categories: saving and spending. From there, encourage them to set up subcategories that dictate where the money will go.
Larger savings goals may be for a car, college, a laptop, a cell phone, or deposits into their savings account. Regular spending includes lunch money, gas, streaming subscriptions, clothes, entertainment — anything teens need on a very basic level.
Allocate Money for Expenses
At this point, it’s time to decide how much money your teen will set aside for these expenses. There are several viable strategies for doing so.
One is the popular 50/30/20 rule — 50% of their income goes toward what they need, 30% for what they want, and 20% for savings. Another is zero-based budgeting, in which they assign every dollar they make to a regular expense or savings account until their income reaches zero.
You can also talk about percentage-based budgeting, paying off small debts first, or automatically putting a portion of monthly income toward savings (“pay yourself first”). A budgeting app can be very useful at this stage.
Introduce Tracking and Monitoring
Finally, give your teenager the tools they need to stay on top of their budget. Apps like Mint or PocketGuard are especially handy for this. However, your teenager should also use more hands-on programs like spreadsheet software, accounting software, or even green ledger paper to physically track their income, savings, and spending.
Again, underscore that many adults have problems keeping track of their money. It’s a real-world issue that can be hard to fix without knowledge. That’s what you’re trying to provide to your teenager right now: the ability to reach a higher level of discipline and communication when it comes to money.
👉 Learn more: Discover the top budgeting tools of 2023, including both free and paid options, to elevate your financial planning.
Why Is Budgeting Important?
Children and teenagers don’t typically think too deeply about the specifics they’ll have to tackle as adults, aside from daydreaming about their future careers.
However, teenagers are in a strong position to understand budgeting concepts. They’re important to learn because they establish habits that can sustain them as adults. With a firm foundation in basic financial planning, they’re more likely to endure the unpredictable when they’re adults.
They may see positive results from budgeting sooner than they think. A 22-year-old Princeton student graduated debt-free, attributing her achievement to her father’s insistence on financial education. There are numerous stories about young entrepreneurs and investors who found notable success after learning about earning and savings as teenagers or even younger.
These success stories are unique, but we know they’re possible to achieve. One thing is for certain: all great financial success comes from a deep understanding of how budgeting works. The lion’s share of failure stories are of those who didn’t have it.
Learning How to Withstand Peer and Cultural Pressure
Most modern parents remember how peer pressure affected them as teenagers. Multiply that pressure by two, throw in media influence toward consumers, and augment it all with the pervasive influence of the internet. That’s the kind of pressure modern teenagers face.
These kinds of influences can have a big effect on a teenager’s budget. They want to have the things their friends have. They’re driven by consumerist culture and social media influencers to spend money on things they want.
This is another area in which budgeting for teens can help. It counteracts the emotional pressure they feel with the reality of money planning. There’s virtue in having a defined savings goal, whether it’s college tuition or a used car. Accounting for every cent they have and properly allocating their money are homegrown defenses for withstanding outside pressure.
Open communication is key to helping your teenager survive cultural pressure. Being honest about your own experiences as a teen will help them understand their own position. Reinforcing their savings goals and discussing concepts like delayed gratification are also valuable.
Encourage Responsible Money Management
Financial literacy and accountability don’t arrive overnight — if ever. Fiscal responsibility must be taught and culturally nurtured.
You can teach your teen how their income-making methods will transfer over into adulthood. Compare their chores to your job. Working may be a grind, but sticking to it breeds a task-based approach. Older teenagers can get part-time jobs of their own for direct experience.
Allowances offer a chance for education on other money matters, like financial independence, budgeting practice, and the consequences of making certain choices. This approach is especially effective for budgeting for teens, as it provides an ideal instrument for demonstrating how to set financial goals and how to use their money toward achieving them.
However your teen gets their money, it’s never too early to instill a sense of financial priorities and goals. Having those concepts firmly in mind is the key to staying financially — and emotionally — successful as adults.
Track Your Teen’s Financial Progress
Your teenager should monitor and track their progress when learning how to budget, and so should you. But it’s important to do so without being overbearing or intrusive. They’re not babies anymore, but teenagers still feel vulnerable and sensitive.
That’s why open, unthreatening communication is such a vital part of teaching budgeting for teens. Talk honestly and freely about setting savings goals, creating budgets, monitoring cash flow, and controlling spending. As always, sharing your own experience in these areas can be valuable.
Beyond that, work with your teenager and agree on expectations. If you plan on monitoring their bank account, explain that from the outset. Insist that it’s for education purposes only, not to impose your standards on them.
Most of all, give your teenager the respect they need (and deserve). Sometimes teens need privacy, and that can instill a sense of financial independence. That’s what all this teaching is about in the first place.
Budgeting for Teens: A Valuable Learning Experience
The real world can be scary, but learning how to manage money doesn’t have to be. That’s why budgeting for teens is a crucial thing to teach. The driving principle is being open, honest, and supportive.
Make learning how to budget hands-on experience. Collaborate on a budget, help your teen sweat the details, resist undue outside influence, and spur positive financial habits. If you’re successful, they will learn something valuable. You will, too!