For most teens, as soon as some money lands in their hand, they start itching to spend it. As a result, they often go broke soon after they get the money. They are old enough to know what money can do, but haven’t yet learned the ins and outs of working hard for your money and how to save it. However, there is no reason teens can’t learn money management. In fact, with proper teaching and guidance, they can be as good as adults at budgeting, saving and spending wisely.
The key to money management for teens is learning how to budget. If you teach them the essentials of budgeting, they will learn the rest themselves. So here are some tips on how to teach your teenage children to create a budget and live within that budget.
- Explain the meaning and importance of budgeting: The first step in teaching your teen about budgeting is to explain the meaning of a budget (“It’s a plan for spending based on your income and expenses”.) and the importance of budgeting (“To make it last until the next paycheck and also to acquire some savings”). Once they grasp the meaning and importance, they will show more interest in learning to budget.
- Teach your teen to create a personal budget: Sit down with your teen with a paper, pen and calculator. You can also create a budgeting spreadsheet with Excel. Start by asking him to list his sources of income and expenses. He may list his income sources as allowance, babysitting, gifts, or a part-time job, and his expenses as CDs, DVDs, movies and going out with friends. Based on these items, show him how to create a budget for the whole year. Don’t forget to include a savings target.
- Ask your teen to prove that he can achieve his saving target: Once he has learned how to budget for himself, ask him to prove to you that he can live within the constraints of his budget and achieve his saving target as well. At the end of the month, ask him whether his expenditure exceeded his budget or whether he managed to save any money. If he ran out of money days before the end of the month, go through his expenditures together to see where he can cut back.
- Teach your teen how to create a budget for the family: Now it’s time to involve your teen in creating a budget for the whole family. For this, you will have to show him the family’s sources of income, and where the money goes each month. List all your income sources in one column and the expenses in another column. In the expense column, include everything including food, clothes, toiletries, rent, gas, mortgage, movies, music, life insurance and car insurance. Again, don’t forget to include the savings target. This is a very valuable exercise, as your teen will see exactly how the family’s finances work, and will start to understand the responsibilities that come with owning a home, having a family, and paying for all the related expenses.
These lessons on how to budget will prepare your teen for managing their money well as an adult. Education is a huge part of their financial freedom in the future. Visit our Education Resources for more information you can use to teach your teen about money management.