As a parent or guardian, one of your most essential responsibilities is to instill the value of financial planning in your children. There’s a good chance your adolescent is already making money on their own. So why not show them the ropes on how to properly handle it?
In a 2021 Citizens Bank Junior Achievement Survey, 56 percent of adolescents said they’ve spoken about financial matters with their parents. But barely a third of the Class of 2020 high school graduates said that being financially independent of their parents within a decade was a financial priority.
Budgeting is a great way to help your kid become financially independent quickly and comfortably. If you’re just getting started with the essential conversations about money with your children, this budgeting guide might help you get started.
The Most Important Things to Remember
- Budgeting is critical for kids because it teaches them how to control their spending and cultivates sound monetary practices.
- Teaching budgeting skills to teenagers may begin as early as the age of 13 or when they begin earning their own money via a part-time job or stipend.
- Teaching your adolescent about budgeting may be as simple as talking about the difference between what they really need and what they desire.
- Teaching kids the fundamentals of budgeting may be made simpler with the use of free financial tools such as budgeting apps or prepaid debit cards for teens.
Begin by learning the fundamentals of budgeting
When educating teenagers about budgeting, it’s best to keep things simple at first. With a few simple questions, you can get started:
- What’s the difference between a spending plan and a budget?
- What’s the big deal about budgeting?
- What are the components of a budget?
Teens should know what a monthly spending plan is, at the very least. In order to stay out of debt or spend more than you have, make a budget detailing where your money is spent and where it comes from. Creating a budget requires just two things: sources of income and sources of expenditures. It’s important for teenagers to understand the importance of keeping track of their monthly income, spending, and remaining funds in order to get valuable insight from the patterns that emerge.
Once you’ve covered the essentials, you may go on to more in-depth budget conversations. You might, for instance, talk about:
- An explanation of the distinction between costs that are predictable and those that are not
- Costs anticipated versus reality
- Understanding the difference between total revenue and net revenue for each person
- Saving and investing your money are essential.
It’s also critical to talk about the effect on one’s budget of unanticipated costs or incidents. According to the National Endowment for Financial Education, seven out of ten people would suffer financial hardships as a consequence of the global health crisis in 2020.
When teaching your adolescent about budgeting, talk about the advantages of having an emergency fund. When teenagers have safety nets in place, they may be less financially stressed in the aftermath of unexpected occurrences.
Make Your Teen a Part of Your Financial Plan
Once you’ve mastered the fundamentals of budgeting, you may move on to more advanced topics. It may be helpful to lead by example and reveal your personal budget information. Children and teenagers are keen observers and often turn to their parents for advice on a wide range of topics, including money management.
Of course, this is supposing you have one, which many people do. An yearly budgeting study conducted by Debt.com over the course of five years indicated that 86% of individuals were really managing a budget in 2022, an increase from 80% in 2020 and 2021. If you’re a budgeting expert, this might be a great chance for you and your adolescent to learn from one other.
Creating a list of your monthly home costs with your adolescent may be a fun and educational experience for both of you. Then your adolescent may go through them and classify their costs. In this section, you may learn about the differences between fixed and variable costs, how much money you have to spend at your discretion, and how taxes affect your finances.
Discuss the budgeting system you use and how it compares to other methods. It’s a good idea to look into:
- Budgeting from the ground up
- Method of budgeting in 50/30/20
- Using envelopes as a technique of budgeting
You’ll be able to describe how each budgeting system works and why some people prefer it to others. Your adolescent may then construct a budget of their own.
Because adolescent finances vary from adult budgets, this method is useful. They aren’t likely to be making enough money to cover a house payment or student loan repayments, and they aren’t likely to be receiving an annual wage. Even so, teaching them how to budget the money they make from performing chores or working a part-time job may be helpful.
Instead of using a pen and paper to develop an example budget with your adolescent, consider downloading free teen budgeting worksheets.
Discuss wants and needs with your adolescent
While it may seem counterintuitive, understanding the distinction between desires and necessities is an essential part of educating your child about budgeting. It’s time to keep things simple again. You can’t live without rent payments, but you can live without Netflix subscriptions. Explain the difference between a necessity and a desire.
This notion may be explained in a variety of ways to teenagers. As a first step, you may look through your or their own budgets and categorize each item.
Ask yourself, “Can I live without this?” for each cost on the list. They may use this method to sift through their goals and requirements on paper. In addition to hypothetical examples, real-world examples and experiences might be used. If you’re on a tight budget, back-to-school shopping might be an opportunity to talk about what’s essential and what isn’t.
The primary objective should be to teach your children how to set spending priorities so that their basic requirements are covered. Also bring up the ramifications of failing to discriminate between basic human necessities and luxuries. Debt and the dangers of using a credit card or debit card to make purchases is a wonderful topic to discuss in this context.
Giving kids a prepaid debit card or opening a teen checking account might help them learn to prioritize their desires and needs as they manage their own finances.
How to Help Your Teen Pick Simple Spending Sub-Categories
For the most part, budgets are lists of revenue and spending. However, categorizing a budget might assist teenagers in determining precisely what they want to spend their hard-earned cash on.
Remember that a teen’s budget is unique since it focuses on the most common costs that adolescents face. So get down with your kid and discuss the areas they would want to put in their resume.
You may find The Balance’s free budgeting calculator useful in illustrating a basic budget.
Include in your teen’s spending plans are:
- care for oneself
- If they’re accountable for paying for the insurance, they’ll have to.
- If they’re in charge of providing cell phone coverage.
- Expenses related to gas
- Going out with a group of people for a night of fun
- Extracurricular activities or school materials that you don’t have to pay for.
Savings should be a part of every teen’s budget, on top of their usual spending. Compound interest, short-term and long-term savings objectives, and the importance of saving money may all be discussed with your students.
It is now up to your adolescent to pick how much money they want to spend on each category. They may have five areas of spending: clothing, petrol, going out with friends, school supplies, and savings. You can assist them in determining how to distribute their financial resources. Finally, they could come up with something like this:
- 25 percent off all clothing
- The following percentage applies to gas: 15%
- 40 percent of the time spent with friends
- Ten percent discount on school materials.
- Ten percent off:
For adolescents, it’s a good idea to make budgeting relevant and practical so that they’re more likely to continue with it long term. Every person’s financial situation is unique, and their budget will reflect that.
Give Your Teenager the Tools They Need to Manage Their Money
By giving them with some simple tools to get started, you may make budgeting more fascinating and engaging for kids. Teens may use a spreadsheet, a budgeting worksheet, or an app to keep track of their finances.
Keep talking about money with your adolescent after they’ve started budgeting. You may ask them to meet with you once a month to discuss their budget and what changes, if any, they might need to make. This might help them get into the habit of budgeting on a regular basis.
The applications Wally and BusyKid, which monitor your teen’s tasks and make a direct transfer after they’ve been finished, are excellent budgeting aids for adolescents. FamZoo is a budgeting tool for the whole family.
The Bottom Line
Financially speaking, it is important to teach your adolescent how to manage their money. The goal is for them to become financially secure adults who can manage their own money. Early and frequent budgeting discussions with teenagers may help them establish a strong financial foundation for their future.
What are some of the best ways for teenagers to save money?
It is possible to assist your adolescent save money by encouraging them to incorporate saving in their budget when they earn it via housework, a part-time job, or a side venture. Young people should begin saving 10 percent of their salary, according to the Consumer Financial Protection Bureau. As an alternative, you might open a checking and savings account for your teenagers that are connected.
Why should a teenager care about budgeting?
As an easy approach of getting your teenager interested in budgeting, you may start by discussing their financial objectives with them. For example, if your kid desires a new gaming system, now is the time to discuss how to budget and save for it.
To entice a teenager into budgeting, you may try employing digital tools. Budgeting apps for teenagers may help them feel more in charge of their finances by providing access to a prepaid debit card or debit card.