Budgeting 101 for Teens

Budgeting 101 for Teens
Budgeting 101 for Teens

Financial management skills teach your teens to budget and promote self-discipline and responsibility. These two essential skills will be helpful in other areas of life. While it’s not easy to start discussing saving and budgeting with your teens, you can begin by discussing family savings and how your household income is divided for some purposes.

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Budgeting for the Future

Once they know how much your teens will receive monthly, you can start teaching them the simple concept of time. For instance, saving money for the next family vacation or new equipment for their potential hobbies, such as a new racket or more sophisticated musical instruments. For a more advanced lesson, you can encourage your teen to have long-term saving plans to help them anticipate bigger goals. These include higher-level education admissions and acquiring new assets.

how to teach my teen how to budget
Budgeting for the Future

To facilitate your teen’s understanding of budgeting, you can explain four essential components: income, expenses, savings, and debt. Besides these elements, you can help your teen separate their needs, wants, and goals.

What is the #1 Rule of Budgeting?

Of all the budgeting tips, the first rule you should tell your teen is to pay themselves first. This means that once your teen gets their monthly allowance, they should allocate some portions to the four components we’ve mentioned in the previous point.

What is the #1 Rule of Budgeting
What is the #1 Rule of Budgeting

Parents who are more familiar with the conventional budgeting method, such as cash savings through bank savings accounts, should also adapt to more tech-savvy procedures. This includes habituating yourself with saving and transactions through e-commerce and digital wallet. Because, as tech natives themselves, your teen may prefer to regulate their budget digitally.

Budgeting Helps Achieve Financial Independence and Stability

how to teach my teen how to budget
Budgeting Helps Achieve Financial Independence

Nowadays, your teen can easily find tips on being financially independent and stable at a very young age. But nothing beats learning to set up a spending and savings plan, from the simplest stuff, such as how to save money, to a more complicated task of calculating equity from your parents. Everything starts at home. And if you want your family members to be financially secure, the only way is to be disciplined about your budget.

Setting Financial Goals

It’s essential to keep your teens motivated with their financial journey. Because once they aren’t excited when they set their financial goals, the process can be challenging. You can start by giving them some perspectives. For instance, tell them that 10 trips to the movie equal a new backpack they have dreamed of, so you can let them decide.

Setting Financial Goals
Setting Financial Goals

Remember to always help them calculate the overall costs of their spending. If they want to buy a new guitar, for example, help them map out the associated costs, such as the guitar strings, the hard case, or the cost of guitar lessons. This will teach them to approach spending with a holistic view.

1. Long-term and Short-term Financial Goals

What is a goal without a timeline? A timeline will give your teen an idea of how long they need to commit to their goals. However, unlike adults with enough resources or income to set longer-term financial goals, keep your teen from going after their long-term financial goals. A baby step is a progress, after all.

Help your teen understand the true meaning of short-term financial goals first. They should know that even though it’s a short-term goal, it typically takes more than a single pay cycle. They should save up for a month to achieve their short-term financial goals. While they need around up to 6 months of saving up to achieve long-term goals.

2. Do You Really Need It? Or Only Want It?

You might have experienced it yourself, a fine line between liking and wanting. You can teach these two concepts to your teen by telling them their childhood story. When they were toddlers, they forced you to buy them a toy. They couldn’t contain the urge to get one as if there was no tomorrow.

Yet, on receiving the toy, they just played with it for a couple of minutes, forgetting it altogether. They just stockpiled another toy in the same pile. The same applies to the urge to want other stuff—up until now. Tell your teen to always ask themselves, “do I need it? Or do I just want it? Can I live without this stuff?”

3. Saving for Emergencies

Saving for emergencies is like bringing an umbrella or a raincoat in this constantly changing weather. You may feel the sun’s warmth and have it rain the next minute. Creating a separate account for emergency funds is a good start for your teen. This will give them an understanding that the money is intended to cover emergencies, like vehicle repairs, accidents, or hit by a disaster.

how to teach my teen how to budget
Saving for Emergencies

Life is full of surprises. That’s why we must set aside some money for emergency purposes. Your teen can save approximately three to six months of expenses, depending on their habits, lifestyle, and social life.

Income and Expenses

Income and Expenses
Income and Expenses

Before deciding your teen’s preferred ways to save money or savings plan, you need to explain to your teen about income and expenses. While revenue is not solely about salary and expenses have some categories, it’s wiser to simplify explaining these concepts to your teens.

1. Income and Expenses: The Simplified Concept and Explanation

While budgeting is the idea of creating a plan and strategy to utilize your money, remember the four components of budgeting itself; income, expenses, savings, and debt. Explain to your teen that income is the total of funds received over a certain period. For instance, the sum of their weekly or monthly allowance from you, salary from their summer jobs, and income from their part-time work.

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Expenses are divided into two three categories, namely fixed expenses, variable expenses, and periodic expenses. Fixed expenses are predictable because the amount remains the same from month to month such as gym membership fees, e-book subscriptions, etc. Variable expenses include movie tickets, eating out, birthday presents, etc. Period expenses are holiday spending, tuition, and so on.

2. Track them All

how to teach my teen how to budget
Track them All

Help your teen list and itemize their monthly expenses. Remember to consider their income which will be subtracted from the costs, and let them assess the remaining amount of money and whether it is sufficient. Anticipate a possibility where the expenses outweigh their income. Because if that happens, you may help re-arrange their expenses.

3. Categorize the Expenses

If your teen’s monthly expenses exceed the income, you can trim some of them. However, before determining which expenses to cut, ask them to categorize them individually. Fixed expenses are for those permanent consumptions that will stay the same over a long period. Expenses that fall into the category of variable expenses should be that to entertainment and hobbies related. And as the name indicates, periodic expenses are consumption that happens periodically.

Evaluate each one of the expense categories. The most adjustable accounts are variable and periodic expenses. You can advise your teen to trim some expenses until the income and expenses figures agree.

What age is appropriate to start teaching a teen about budgeting?

What age is appropriate to start teaching a teen about budgeting
What age is appropriate to start teaching a teen about budgeting

According to research, children as early as three years old can comprehend a simple concept of budgeting. Thus, your next task is to match the lesson with your teen’s age and development stage. Remember that it is essential to teach them an introductory financial lesson as early as possible.

Pre-Teens (9 – 12 Years)

If you want your pre-teen to be a future adult who does well with money, this is the right time to expose them more to conversations about money. As their sense of independence develops significantly in this cohort, grant them a responsibility to save and spend their allowance. Let them decide the best way to save money based on their preference.

Simple calculations and money-saving tips might be sufficient at this stage. Whenever your pre-teen is ready for further lessons, you can always pave the ways to become financially independent by giving a glimpse into banking for teenagers.

Teenagers (13 – 17 Years)

Get ready for a more detailed financial lesson to teach your teen. Your teen may consider having a side job or being involved in specific communities, hence additional expenses. At this point, they should’ve been equipped with an understanding of various incomes and expenses, especially if they have both salary and allowance.

Once they’ve mastered the concept of simple budgeting and how to save money proportionally, you can start introducing them to more complex financial lessons. These include investments, debts, and calculating equity while considering assets and liabilities.

Creating a Budget

how to teach my teen how to budget
Creating a Budget

We tirelessly keep stressing the importance of budgeting at an early age. This is one of the most essential life skills not taught at school. It may seem complicated and challenging initially, but as you hone in on the finance teaching skill, you will efficiently deliver it to your teen.

1. Demonstrate How to Create a Budget

Monkey see monkey do. Since your teen was a kid, they have learned so much from you, bad or good, through observations. Budgeting skill is no exception. You can start demonstrating how to create a budget to manage household incomes. While it might seem a bit complex for your teen to digest, let them get used to it before applying it to their accounts.

2. Allocate Money toward Various Expenses

Allocate Money toward Various Expenses
Allocate Money toward Various Expenses

As mentioned before, setting up your expenses into specific categories will help you cut off some unnecessary expenses. Let your teen apply this, too, for their simple monthly budget. In exercising this, you must also highlight the importance of saving money. First, list your teen’s income, and when you have the total amount of them, allocate some portion of their income to saving accounts. Next, the remaining money should be given to various expenses. That way, your teen can easily track the money flow.

3. Sticking to the Budget

Besides creating the budget, your teen must as well stick to it. First, choose a bank account with significant benefits and features. Second, train your teen to sleep on big tertiary purchases. If they want to buy another pair of shoes just because they are on sale, take a few days to consider. This will prevent them from being impulsive. You can also reward them once they complete a week of the no-spend challenge you set for them.

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If your teen is sociable, they must plan the social events or friends’ birthdays ahead. Introduce them to occasional discounts on their favorite stores or the advantages of membership cards—anything that can cut the price! Stress the importance of both expense and income allocations is also necessary at this point. If you need a brief suggestion, just use the 50-30-20 rule. You can use 50% of your income on your primary needs, 30% on things you want, and 20% on savings or paying debts.

4. Self-discipline and Personal Responsibility in Successful Budgeting

Remind your teen that the strategies in this article will not be effective if they do not adopt certain behavior to keep the budgeting working. The personal attributes you need to train your teen are self-discipline and a sense of responsibility, among others. Self-discipline and responsibility must be developed not only in budgeting aspects but for other life aspects.

how to teach my teen how to budget
Self-discipline and Personal Responsibility in Successful Budgeting

Self-discipline requires your mind to focus on the desired goals and keep motivated throughout the journey. While being responsible teaches your teen to set the plans right. Combining these two traits and maintaining the budgeting strategy is the recipe for achieving financial independence.

How Can I Teach My Teen About the Dangers of Credit Card Debt and How to Use It Responsibly?

Keeping up with credit card payments is challenging for teens. But we are here to tell you that credit cards and teens are not always a bad combination—if you firmly prepare them!

How Can I Teach My Teen About the Dangers of Credit Card Debt and How to Use It Responsibly
How Can I Teach My Teen About the Dangers of Credit Card Debt and How to Use It Responsibly

The two traits we’ve discussed before, self-discipline and responsibility, are among the key characteristics your teen must possess before obtaining a credit card. Other than that, you should observe their spending behavior daily. If your teen is more of an impulsive type, then consider getting them a credit card.

Budgeting Tips

how to teach my teen how to budget
Budgeting Tips

Now that we put credit cards into the variable mix of budgeting, you need next-level strategies to accompany and assist your teen in working on their budgeting game.

Budgeting Tips and Strategies

This section specifies the budgeting tips and strategies for credit card holders. Please note that your teen’s characteristics should be your priority.

1. Avoid Debt

how to teach my teen how to budget
Avoid Debt

We know that debt is your top fear as parents whose teens have acquired a credit card. We encourage you to perceive it on the bright side. Having a credit card can teach your teen to be more responsible and disciplined—traits they should’ve possessed in the first place. To avoid debt, you should remind your teen to record every expenditure and redefine needs and wants accordingly.

2. Set the Right Limit

Depending on which age your teen is right now, you can determine the credit card limit for them. For 14-year-old teens and under, we recommend opting for a prepaid card to assess their purchasing behavior within the set limit.

For 14-18, consider turning your teen into an authorized user under your card. If your teen is over 18 years old and they already gain their income, do not rush into getting a credit card. Instead, choose a card issuer that is specialized for students. Bear in mind that this is a flexible option and not restricted by age cohort.

3. Shop for Deals

More than just saving money, your teen should also know how to hunt for deals. Not to direct them to be avid shoppers, but instead of being convinced to give them extra money for shopping, teach them to shop for less expensive items.

4. Stay with Debit Cards

The drawbacks of getting a credit card for your teen are overspending, debt, high-interest rate, etc. If your teen doesn’t possess the prerequisite traits of self-discipline and is highly responsible, they may stay with debit cards instead of credit cards.

A prepaid card is the safest option for teens with uncontrolled spending habits. You will always have a chance to remind and talk to them about money and budgeting every time you are about to load money onto their card.

5. Money Management Skills

how to teach my teen how to budget
Money Management Skills

All the points we conclude here come down to the basic management skills of teens. Budgeting, setting financial goals, and acknowledging various incomes and expenses are part of money management. It’s essential to train your teen how to save money, but they should also get a sense of the overall management that includes earning, spending, handling, organizing, and banking money.

6. Small Habits = A Huge Return

Money management skills are only sometimes about counting your income and tax and cutting your spending. Let’s also count on the small habits that will make a big difference! Your teen should get used to reading a store receipt, pay attention to marketing messages so that they won’t be easily trapped into buying things they don’t need and learn a thing or two about tax. Always involve your teen when it comes to money and financial talks.

One day at a grocery store, we saw a teen talking to a crew and discussing a return policy for damaged stuff. From the smooth flow, we could judge that the teen understood the return mechanism as he brought the original packaging and the receipt. This is one of the money management skills that is acquired from a small habit of paying attention to the returning procedures.

7. Find Areas Where They Can Cut Expenses

We’ve stressed enough about the difference between the stuff you want and the stuff you need. Thus, when cutting expenses, you should evaluate these two categories. When your teen demands more shirts, assist them in cluttering and seeing if they actually need the new ones.

how to teach my teen how to budget
Find Areas Where They Can Cut Expenses

Another way to cut unnecessary expenses is by managing their monthly subscriptions. Direct them to pick cheaper alternatives for entertainment purposes. The same goes for plans where your teen can always downgrade and ignore some trivial features to save money.

8. Encourage Your Teen to Look for Ways to Increase Their Income

Teens can have multiple income streams. Even though your teen is not responsible for household bills, they still want to go out, shop and do other things on their wish list. Instead, when doing it right, juggling between some jobs can enhance your self-discipline and responsibility.

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This era allows your teen to find and apply for online jobs that do not require your teen to be mobile. You need to advise and observe your teen’s time management skills at this stage. Once they can work without distracting them from their priorities and main goals, you can assist them in recreating the new budget plan.


Starting your teen budgeting lesson early is a good decision for the entire family. In a hopeful manner that your teen can copy your wise financial behavior and decisions, you will be forced to do better budgeting for the household. Once they know how to pay themselves and allocate their money for some purposes, accompany and monitor them in creating short-term and long-term financial goals. If possible, set up a monthly evaluation to assess their performance in managing money.

The whole budgeting lesson is intended for your teen and you as parents because you must also speak their language. For instance, your teen might be more familiar with apps to track their saving and spending, and you should learn how to operate them for you to better observe their financial activities. The lesson will only be as effective if your teen is disciplined and responsible.

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Frequently Asked Questions (FAQ)

1. What is the 50 30 20 rule?

The rule for budgeting where recommends using your 50% after-tax income for daily needs, 30% for entertainment purposes or things you want, and 20% toward savings or reducing debt. It may look simple, but this primary budgeting method requires consistency and perseverance.

2. How do you teach budget skills?

By giving them an example of a budgeting routine for the household. Your teen should get the idea that budgeting is part of the habit. Once they have this in mind, you can remind them of the simplest things, such as paying for themselves first, setting short-term financial goals, and keeping track of their incomes and expenses.

3. How can I help my teen set financial goals and make a plan to achieve them?

Start by involving stuff they like or have been dreaming of but are still reachable within one month of saving up. For instance, they’ve been thinking of having a new laptop case. Put the stuff on the short-term financial goal and go with the budgeting method mentioned above. Slowly but surely, your teen is trained to set their bigger goals.

4. How can I encourage my teen to be mindful of spending and saving?

By being mindful of your spending and saving, your teen will steadily grow the awareness of making the same pattern as yours. Remember the term “monkey see, monkey do” when your teen was a kid? Not entirely surprisingly, that still applies today as nothing beats first-hand knowledge. Mindful spending and saving should become habitual in the family.

Suzy Prichard

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