5 Key Budget Skills for Teens – What You Need to Know
It seems like there are an endless number of lessons that you have to teach your child. From tying their shoes to teaching them why they have to be nice to others, the lessons never really stop, even as they get older.
One lesson often forgotten for teens is the value of money. Budgeting is a powerful tool that forms the foundations of many adult lives, so the teenage years are a great time to teach your child the basics of budgeting. But where do you start?
Keep reading to learn how to help your teen develop great budgeting skills, and learn what the top tips are for teens to keep on top of their spending habits and reach any financial goal.
Why Budget Skills Are Important for Teens
A lot of the time, when teenagers move out on their own for the first time, whether for college or otherwise, it’s the first time that they have to be responsible for their everyday lives, and they soon learn the role that money plays.
What’s more, if you continue to fund your teenager throughout college, they may still be disillusioned by the true importance of money and continue to mishandle it until they become more independent and start making their own. However, by the time they get to this point in their adult years, they may have terrible money habits, negatively impacting their quality of life.
Although handling money is a lesson that many young adults learn from experience, you don’t have to send your teenager out into the world without knowing how it works. Set up the foundation for good budget skills in your child’s teenage years to prepare them for greater independence as they get older. Teenagers who develop good financial habits early become the most financially responsible adults.
Teaching Your Teen Budget Skills – The Basics
Before we dive into the budget skills you have to teach your teen, you have to understand the basics of budgeting for teens.
For the most part, if you don’t talk to them about it, your teenager probably has a basic understanding of money, which involves knowing that you make it, paychecks, and spending it on everything they need to live. We already know that money is more complicated than that, but your teen doesn’t have an understanding of how adults handle money if they don’t hear it from an adult.
When to Start Talking to Your Teen About Money
Parents often ask, when is it a good idea to start working on budget skills with a teenager?
There’s no right answer to this question. You can start discussing budgeting skills with your teenager when they land their first part-time job. However, if they end up not working until they’re 17 or 18, you could have lost many valuable years where you could have first started teaching them fundamental money lessons. They will have most likely formed some money habits by then, and if it’s negative, you’ll have to work with them to reverse that habit.
Instead, it’s a good idea to start talking to your teen about money as young as 13, which is when they usually become more independent. This age is where they might start asking for money to go to the movies with their friends or grab a bite to eat after school. If you start giving them this money, they don’t develop an understanding of where it’s coming from.
How to Discuss Budget Skills With Your Teen
When starting the discussion about budgeting, it’s best to keep it simple. Start by explaining the answer to these questions:
- What is a budget?
- Why do you need to budget?
- How do you make a budget?
At the foundation of teaching your teen about money is helping them decipher the difference between needs and wants. Explaining the difference between these two concepts gives your teen a jumping-off point in terms of tracking their spending.
From there, explain income and expenses and how these concepts work together to determine your financial standing. Once your teenager understands these basics, you can move on to more complicated money topics, such as:
- Gross and net incomes.
Ready to help your teen on their path towards financial freedom? Let’s talk about the best budget skills to teach them.
5 Top Budget Skills for Teens
We established that your teen must form budget skills at a young age to drive them towards good financial habits in the future. However, money is such a big subject that it can be hard to figure out how to start a conversation with your teenager.
To help you out, here are the top 5 budget skills to help your teen understand the importance of budgeting and saving.
The key to understanding every aspect of your own money is by tracking your habits, which starts with tracking your spending.
Tracking spending is a great way to start your teen forming great financial habits. Not only does tracking spending make your teen more aware of their money habits, but it also helps them identify places where they may be spending unnecessarily. Maybe they’ll realize that they don’t need a frappuccino every day after school or that they’re spending too much money on movie outings.
One of the best ways to track spending is by creating budget categories. This way, they can see exactly where their money is going. Even though your teenager most likely doesn’t have a lot of bills, it’s great to break down their spending into needs and wants.
Start by breaking down savings and expenses, then break each category down further into smaller categories such as:
- Bills (phone bill, etc.).
- Necessary expenses (gas, lunch money, etc.)
- Miscellaneous expenses (fast food, clothes, entertainment, etc.).
Talk about how much an unexpected expense can throw off a personal budget and the importance of planning for unexpected costs throughout the budgeting process.
Have your teen track their spending for a month, and then regroup to discuss where they’re spending the most, whether their spending is necessary, and if there are any areas that they can cut down their spending and save money instead.
Work for Their Money
You can teach your teen the importance of money and financial planning even if they get an allowance, but the truth is that your teenager will always see you as a safety cushion and may not attribute as much value to the money you give them, knowing that you can give them more. Instead, they may put more value on the money they earned outside of the home.
If they can handle it, having your teen get a part-time or weekend job is a great way to help them understand the value of money and work on their budget skills. They’ll most likely make more money from a part-time job than what you give them in allowance, meaning that they’ll have more money to spend. This is where the real test begins.
When they first start working, your teen may feel overwhelmed when they see how big their first paycheck is. With very minimal expenses, chances are that they’ll have the desire to splurge their new earnings, especially when they know they’ll make more. To prevent this, take your teen’s first paycheck as an opportunity to help them create a budget.
Great part-time and weekend jobs for teens include:
- Pizza delivery driver
- Sales associate
As your teen continues to work, they’ll soon understand how much work it is to make money and how easy it is to make it disappear. They’ll end up placing more value on money and focusing more on their budget skills for the future.
One way to encourage your teen to work on their budget skills is to motivate them, and the best way to motivate anyone is by setting goals.
Has your teenager been asking for the latest iPhone? A new laptop? A new PlayStation? Instead of making these items birthday and Christmas gifts, challenge your teen to save up for the things they want on their own. Do a budget analysis to determine where they can cut back on spending to free up more cash flow. Not only does this teach discipline, but it gives them something to look forward to once they save enough money to reach that goal.
Once they reach their savings goals, have them continue to save for other longer-term goals, such as college savings or a new car. Long-term saving habits will follow them into their adult years when they decide to start saving for a house or retirement.
Seek External Tools
Even though pencil and paper are a great way to start your budget formulation, the reality is that your teenager rarely uses pen and paper for anything. Therefore, it’s important to leverage digital financial management tools to teach children about financial literacy.
Today, many financial management tools are available to create a budget, track everyday spending, and reach financial goals. Even better, many of these accounting tools are free, meaning they can help your teen manage their cash flow at no extra expense.
Introduce your teenager to those personal finance tools, and help them set up accounts. A great first step is to help them set up or give them access to their online banking account so that they can begin tracking their money themselves (if you don’t have a bank account for your teenager yet, this is the first step).
Other handy budget management tools to introduce to your teen include:
- Toshl Finance
- iAllowance app
What’s more, as much as life experience is a great basis to teach your teen budget skills, sometimes you may want to seek other resources to get your point across. If your teenager loves to read, suggest some books about money management to help them learn more about budgeting. The same goes for other media, such as podcasts or Youtube videos.
Monitor Your Own Money Habits
You can tell your teen anything you want about the importance of budgeting and saving, but if they see that you’re spending $7 on a latte every morning on your way to drop them off at school, they may have some problems listening to your advice.
Lead by example and monitor your own money habits. Go on this financial journey with your teen by making your budgets together. Tracking your own expenses and savings with your teen gives them a better idea of how much money adults make and how to balance your income with the number of bills you have. Just seeing how many bills you have to pay each month might give your teenager more incentive to improve their budget skills from now on!
Wrap up: The Importance of Budget Skills for Teens
In general, it’s never too early to teach your child budget skills —you can even teach them to your toddler using building blocks.
However, as your child enters their teenage years, budgeting becomes more and more important. By teaching your teenager the right budget skills, you’ll prepare them for their future and ensure that they become financially responsible adults.