For most teens, as soon as money lands in their hands, they start itching to spend it. As a result, they often go broke soon after they get the money. Teenagers are old enough to know what money can do but haven’t yet learned the ins and outs of working hard for money and how to save.
Nonetheless, there is no reason why teens can’t learn good money management skills. 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, the rest will come naturally.
Here are some money management tips for teens and advice on how to teach them to budget.
Explain the meaning and importance of budgeting
The first step in teaching your teen about budgeting is to simply explain the meaning of a budget (a plan for spending based on your income and expenses), and its importance (to make it last until the next paycheck and to acquire some savings). Once teens 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 and grab some paper, a pen and a calculator. You can also create a budget with Excel or even use apps like Mint. Choose a method you know your child will stick to.
Start by asking him or her to list their sources of income and expenses. They may list income sources as allowance, babysitting, gifts, or a part-time job. Teens have minimal expenses, but they might want to spend their money on a cell phone, going out with friends, or clothing. Don’t forget to include a savings target as well, such as a car or post-secondary school.
Based on the income and expenses, show your child how to create a budget for the whole year.
Ask your teen to prove that they can achieve their savings target
Once your teen has learned how to budget for themselves, ask them to prove to you that they can live within the constraints of a budget and achieve their saving target as well.
At the end of each month, ask your child whether their expenses exceeded their income or if they were able to save any money. If they ran out of money days before the end of the month, go through the expenditures together to see where they 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, be sure to include everything you spend your money on (for example food, clothes, rent or mortgage, gas, entertainment, insurance and medical). 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 and helpful tips that you can use to teach your teen about money management.