How To Teach Budgeting To Teens

Have you ever worried that your kids will grow up not understanding the value of money and running into financial difficulties as adults? Thankfully, money management skills can be taught at home, so in this post I wanted to share how to teach budgeting to teens, and how it will help them in different ways.

Why you should teach budgeting to teens

Budgeting keeps on having a bad reputation as being boring and restrictive, but in reality it is simply a plan on how you want spend your own money, to reach your own goals.

It is vital to getting ahead financially and an important money management skill you should be doing for yourself, and teaching to your kids.

But why teach budgeting to your teens? They most likely don’t have a money problem in the world yet!

Well, when your teens are still living at home, it is a great opportunity to practice budgeting, it is skill that you can get better at after all!

Being at home provides a safe environment to practice, and a support network (you) in case of mishaps.

Budgeting teaches a lot of transferable skills like planning, realistic goal setting, monitoring progress, reflection and adjusting for future.

It can also empower your teen to believe that they are good with money and nurture a positive relationship with their finances all the way to adulthood.

What it also teaches is opportunity cost, delayed gratification and creativity.

Opportunity cost

Opportunity cost is the very basis of working. You give up your time, to get money.

The principle works in other situations too, like budgeting.

We can’t get everything at once, as our resources are often (not always) limited. When you spend your money now, it often means you won’t have enough left for something else later.

So budgeting is about decision making, sometimes foregoing what you might want now in order to get something better later.

Or vice versa, getting something now and accepting that there might not be enough for other things later.

This is important to understand when you are working, to make sure you make decisions in a way that you have enough left towards the end of your pay cycle as well.

Delayed gratification

Delayed gratification means that you are able to resist temptation, or your wants now, in order to get something more valuable later.

It is an essential part of being able to save money, and I talk about it in more detail in my post How to teach delayed gratification to your kids.

Creativity

This might surprise you, but let me explain!

If you’re on a budget and there something you want to get that’s not within your budget, what do you do?

Sometimes it is not possible to cut anything out, but it might be possible to earn extra money, and this is where creativity can help.

What can they do to earn a bit more extra money to be able to have that extra money for what they want?

You can help them brainstorm ideas and this should really open your teens eyes to all the possibilities out there to earn money, rather than the thinking that parents/main job is the only way to do it.

How to teach budgeting to teens

First of all it would be good if you shared the family budget with your teen.

It’s important to practice what you preach, because if you’re not doing it, why should they?

Explain that a budget is a spending plan for your money and that the point of it is that you have enough money for all the non-negotiable spending items (like housing, power, internet and food for example), and after those have been accounted for, what is left is for wants like fun things or savings goals.

Next up, let them practice! Give them a small spending category with a budget and allowance to manage it. This spending category could be:

• Their own clothing
• Their own grooming
• Hobby related spending
• Their own entertainment
• …and so on

The above are just ideas, use whatever works with your family!

The main idea is that it would be something you would normally cover anyway but instead of you doing the work, you give it to your teen to manage.

As a part of this you should teach your teen how to compare prices and how to keep track of their budget and what it needs to cover.

You could get them a notebook and maybe even a special pen to write it all down with, this way they will have everything in one place.

Write down the first budget with them, listing all the items their allowance needs to cover and discuss the costs of those items, then add it all up and see what it amounts to.

The allowance amount should be enough to cover reasonable spending in that category (what you would agree to spend if it was you making the decisions).

Once the budget is set up, you give them the allowance and leave them to it.

With younger teens you might want to check in maybe weekly or halfway through the budget period but for older and as they get used to it you can leave just to the end of the budget period.

Now the consequence of going over budget is that they will go without new purchases in the chosen spending category until next allowance is paid, so keep that in mind when choosing it.

The last thing you want to do is give more money if they run out prematurely, it would undermine the whole idea you’re trying to demonstrate by teaching budgeting to your teens!

You can also decide what happens if they have money leftover at the end of the budgeting period, whether it can be rolled over and added to the next month’s budget, or it going towards a savings goal they might have.

Important things to remember

For this to work, there are a few key things to remember:

First of all, be clear and specific.

How much the allowance is, for how long it needs to cover them and what exactly it needs be enough for.

By the way, as far as the time period goes, I recommend going with a month.

This reflects real life as a month captures those monthly bills, it is long enough for them to really have to think about their spending and not to use all the money at the start of the month, but not too long to make it too difficult to be successful.

Second, DO NOT bail them out and give them more money if they run out.

The whole point of teaching budgeting is to demonstrate what happens if you blow your budget: you go without until you get money again.

If you give them more money after they overspend you completely undermine the lesson you are trying to teach.

If they keep consistently running out of money, you might need to review the allowance (is it realistic?) or their spending in more detail to help them figure out why the budget isn’t working.

Third, keep all the related conversations positive.

Overspending and impulse purchases happen to the best of us. The only thing we can do is reflect on it and think of ways to avoid it in the future.

It’s a learning curve and easier to some compared to others.

What we want to give to our teens is positive experiences with money management and normalising talking about it at home in a constructive manner.

Successful experiences with money management will empower your teen to become an adult who knows they can stay on top of their finances.

And positive and constructive money conversations at home growing up hopefully means that if they do run into financial trouble, they will come to you to talk about it BEFORE things get bad and all they need is a “loan”.

But as always, personal finance is personal! Hopefully this post gives you ideas on how to teach budgeting to your teens.

If you have any questions, or want any clarification, don’t hesitate to leave a comment or get in touch through the contact form!