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How to teach your teens about budgeting

Learning the principles of financial responsibility can bring both short-term and long-term success

Daughter sharing her phone's screen to mother sitting on rattan lounge chairs in a bright living room

To state the obvious: Parenting is rewarding, but it isn’t always easy.

So rest assured, you’re not alone if you find your kids’ teen years trying. They’re discovering their independence, and you’re trying not to pull your hair out while they do. Your job is simply to guide them as best you can so they grow into reasonably well-adjusted adults. Among your many important responsibilities is helping them understand financial independence and how it will help their future.

It doesn’t matter if your teen is most likely to earn multiple degrees after high school, transition from the class clown to the next big name in comedy, or wait until they go out into the world to figure out what they want to be when they grow up. They will be on the road to financial independence if they’ve learned and developed essential money management skills and habits before leaving home.

One such skill is creating a budget. It is perhaps the most crucial money skill your teen should learn. With it, they’ll know how to manage their money to save, secure their financial future, and perhaps even build wealth.

Keep reading to learn more about budgeting tips for teens, and how to teach your teen to create and manage a budget. And who knows, you might also learn a few things in the process.

In this article:

Budgeting for teens: Shaping spending and saving habits

According to the 2023 annual Taking Stock With Teens® survey by investment bank Piper Sandler, the average teen spent about $2,400 in 2022, with 60% of that money coming from parents. That may only amount to $200 per month, but the good or bad spending habits teens develop with that monthly $200 can stick with them into adulthood. Helping them build responsible spending and saving habits will help them grow into financially responsible and independent adults.

Common teen financial responsibilities

During the teen years, kids should take on some financial responsibilities to help them prepare for managing money in adulthood. Ideally, they should have a few expenses for which they are responsible and a few money goals to work toward.

Even if most of your teen’s money comes from you, you can still have them pay for some personal expenses, such as clothing, entertainment, or that all-important first date. If they use your car, they can contribute to gas. Savings goals may include putting money away for college or a car of their own.

Common teen money challenges

Keeping Up With the Joneses isn’t just an adult phenomenon. Teens face some of the same money challenges as adults.

It’s tough to deal with the peer pressure of keeping up financially with classmates who always seem to have the newest and nicest things. They must weigh spending decisions based on their wants and needs and, in the process, learn to prioritize needs. Sometimes they learn the hard way that spending money on one thing means not having the money for something else.

Discuss these challenges with your teen and give them the financial tools they need to make better money decisions. Help them open a savings and checking account so they can start building a habit of saving and learning how to manage a checking account. Most importantly, teach them how to manage their money using a budget.

Setting up a budget with your teen

There is no better tool for controlling your personal finances than a budget. A teen who budgets and saves is well positioned to thrive financially as an adult. Your teen will likely have a simple budget, but it can teach them as much about budgeting as a complex one, and should include the following three categories:

1. Income sources

Your teen’s budget should begin with income. They may get money from gifts, an allowance, or a job, but they should treat each source as income and include it in the budget. Ideally, your teen will have a regular source of income to budget, whether from an allowance or a job, to develop this critical skill and habit.

2. Savings for financial goals

Another excellent money habit for a teen to develop is setting and saving for money goals. Help your teen set at least one short-term and one long-term goal they will build into their budget. Short-term goals might include saving for a prom dress or a new video game. Long-term goals might include saving for a car or college.

By including their financial goals as budget categories, you can teach them the concept of “pay yourself first.” This concept dictates that you use your income to meet monthly savings goals before paying bills or buying anything. Teaching your teen to save first and then spend based on their budget will serve them much better now and in the future.

3. Expenses

Your teen’s budget should include essential and non-essential expenses so they can learn how to budget both wants and needs. Just as “paying yourself first” is a habit your teen should form, they should habitually prioritize essential expenses over discretionary spending.

Also, introduce the concept of recurring bills. Your teen should understand that many bills are due every month and that a budget can help them efficiently plan for those bills.

Finally, help them understand that some bills are unexpected but they’ll have to pay them nonetheless. Teach them how an emergency fund can help cover these unplanned expenses when there isn’t enough money in the budget. Show them how to gradually build an emergency fund a little each month and explain the types of expenditures that constitute an emergency, such as a car repair, and those that don’t, such as concert tickets.

If your teen has no essential or recurring bills, create some for them. You may require them to contribute $15 monthly toward their cell phone or pay for their Spotify subscription. They can pay for their gas if they have a car (or use yours). You could even have them treat a monthly deposit into an emergency fund like an essential recurring bill.

Once you’ve created a few expenses for them, show them how they will work them into the budget.

Managing and reviewing the teen budget

A budget won’t teach your teen much about money management if they don’t update and review it regularly.

Budgeting tools

Your teen will need some way to track and manage their budget. One option is to start them off with a budget they manage on paper. However, a spreadsheet or a budgeting app that can automate some of the budgeting process may work better for today’s tech-savvy teens. Ultimately, the best budgeting tool is the one your teen will actually use.

Budgeting habits

The budgeting tool your teen uses is less important than keeping the budget active and avoiding the set-and-forget mentality. Failing to check on and update a budget consistently can lead to overspending and undersaving. Make sure your teen knows the purpose of a budget is to track and review spending and how often they should complete these tasks.

Update the budget regularly: When your teen gets that monthly allowance, weekly paycheck, or birthday cash, they should update the budget or check their budgeting app to ensure it is current. When money gets moved into a savings account or they spend on something, they should update the budget.

As they do so, have them determine if they are staying on budget and how much they have left to spend for the month. The more they remain aware of income and expenditures, the less likely they are to overspend or miss paying a bill.

Review the budget monthly: Have your teen review their budget regularly, at least once per month. Schedule the dates and times you’ll sit down together for a 15 or 30-minute budgeting session. Have them set a reminder on their phone so they don’t forget.

Reviewing the budget at your teen’s favorite coffee shop or pizza place can make it more fun and less like a chore. If food and coffee don’t entice them, perhaps reward them with extra time doing something they enjoy. The important thing is to stress good habits and show them this isn’t something they should dread doing.

At your meetings, ask them questions that can guide them in reviewing their budget:

Ideally, this should be an ongoing process that happens a few times (during and at the end of each month) until you feel your teen is ready to do budget reviews without your guidance.

Teach your teen how to budget their way to financial independence

There are probably many things you hope to teach your teen before they head out into the world, but one of the most important is the ability to manage and grow their money. Although your teen’s initial budget may be simple, you should start discussing the many budget categories they will eventually add someday, such as transportation, housing and living expenses, and insurance.

Share your own financial experiences with your teen, both the good and the bad, and the lessons you’ve learned along the way. Show them how specific money tools, such as a budget, helped you financially — or how not having one made life difficult.

Ideally, one of the helpful money tools you can discuss is life insurance. Your teen might not need life insurance yet, but they’ll appreciate knowing you’re covered, and it will teach them to consider it for themselves when the time comes. And on the off chance you’re not already covered, a term life insurance policy from Haven Life can provide for your family if something happens to you.

You can get a free online quote, and see that there are policies (and rates) that fit within most budgets. Plus, you’ll set a good example for your teen — trust us, they’ll appreciate it someday.

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About Andrea Norris

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Haven Life is a customer-centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.

Our editorial policy

Haven Life is a customer centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.

Our content is created for educational purposes only. Haven Life does not endorse the companies, products, services or strategies discussed here, but we hope they can make your life a little less hard if they are a fit for your situation.

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