Helping Your Teen Learn to Budget: A Critical Life Skill
When my teenager got her first part-time job, I was hesitant to let her manage her own money. She had a main account where her pay cheques were deposited. Then a spending account was attached to her debit card. She only had access to amounts that I would transfer each week. I based this amount on reasonable expenses or things she wanted to save for. I kept the amounts low and no more than what she would need. She was prone to spending money on impulse purchases and was drawn to expensive clothing, shoes, and makeup. Helping your teen learn to budget can be a challenge. They do not always see the value of saving for the longer term.
I wanted to control her spending so that she could save a decent sum of money for post-secondary education. However, by not allowing her to work within a small budget, she wasn’t learning how to make decisions for herself. When she turned 17, I decided that she should have a percentage of her pay cheque each week. She could manage this amount as she saw fit. If she wanted to save for something bigger, she couldn’t just blow through her weekly allocation. This would also be the case in her future adult life. Teens need to gain some experience with the process before they move out on their own.
The First Step: Decide on Your Categories
My daughter does not yet have expenses like rent, food, and bills. However, we still broke down her budget as though she did. We looked at post-secondary savings as her primary expense. This way, she could determine how much she would have left over for personal spending. Looking at her parents’ budget as an example, we added up what we spend on housing, utilities, and other bills. Next was necessities like groceries, gasoline, clothing, and personal care. We then calculated what percentage of our total income these would represent. Next, we looked at how much we like to transfer to savings or investing each month, and calculated that percentage. We did the same for debt repayment. The percentage of our cheque that remained was what would be available for personal spending.
We agreed that seventy percent of her cheque would stay in her savings account for university. Thirty percent would be to spend. She had two accounts attached to her new debit card (a chequing and a savings account). She could transfer some of her thirty percent out each pay period to save up for more immediate purchases. This savings account was short-term savings while her post-secondary account (still attached to our account) is her long-term savings. You may teach them using a traditional notebook with columns. Perhaps they would prefer to use a budgeting app to track their income and expenses. Maybe it’s a computer template that you develop together. Any format that they are most likely to use is the best option when helping your teen learn to budget.
Helping Your Teen Learn to Budget: Distinguishing Wants from Needs
Many teens get drawn into fads and want the latest shoes, electronics, and clothes. They get into the mindset that they need to have it. They fear rejection from their peers, or exclusion when they don’t have the coveted object everyone else has. At the moment, they are not thinking about future savings. Teens very much live in the moment. Having less money to spend makes them think twice about whether they really want the item or not. Maybe it will take most of their bi-weekly allocation and they will have no money until their next cheque. This teaches them to save up for the purchase gradually, find a cheaper alternative, or decide against buying it.
To allow my daughter to practice making these decisions, we often compromise. We pay for her clothing, but if she wants something more expensive than I’m willing to pay for half. She pays for her Apple music, food, and entertainment when she goes out with friends. We pay for meals during her shifts, and one weekday lunch out. Any meals above and beyond this, she would have to decide to pay for. She soon realized that Starbucks drinks should be occasional treats, not daily indulgences. She may want to save for something bigger like a concert ticket. In this case, she may take half from her long-term savings and half from her short-term savings.
Why is Budgeting Important?
An estimated 56% of teens have talked about finances with their parents, according to a 2021 Citizens Bank Junior Achievement Survey. However, only a third of the class of 2020 high school graduates said being financially independent of their parents within 10 years of graduation is a financial goal (https://www.thebalancemoney.com/how-to-teach-your-teen-about-budgeting-4160105). It is important to give teens the confidence to know that they can learn how to budget and manage their own money. Even if you continue to support them financially in certain ways, they need to make this shift to understanding budgeting as part of being a successful adult.
Ideally, teens should learn about budgeting and acquire real money skills well before they move out and have rent payments and other monthly expenses to worry about. “This is especially true now when Gen Z and Millennials are increasingly going into debt just to cover day-to-day living costs. What’s more, a 2019 poll by the Royal Bank of Canada found that many Canadian parents are financially supporting their kids well into adulthood, with 48 percent still helping their 30- to 35-year-old children” (https://www.mydoh.ca/learn/money-101/money-basics/budgeting-101-a-guide-for-parents-and-teenagers/). Helping your teen learn to budget is necessary for your own well-being.
Helping Your Teen Learn to Budget: Gradually Release Financial Responsibility
While many of the parents surveyed were happy to help out with post-secondary education and living expenses, longer-term, it was having an impact on their own ability to save and plan for retirement (https://www.mydoh.ca/learn/money-101/money-basics/budgeting-101-a-guide-for-parents-and-teenagers/). This does not seem right. Parents need to think about their own futures as well. As teens start earning more money, discuss having them take responsibility for some of their bigger needs and wants. Perhaps it’s buying their first car, going on a trip, or even moving out of the family home.
Teaching teens the basics about budgeting at a young age will allow them to gain skills in a stress-free way. They do not need to figure it all out yet. But they get to practice for the future which is so important. You’ll be helping them gain confidence in knowing that they can one day be financially independent. You can then breathe a sigh of relief knowing that they’re on the right track.
