Last Monday I offered up suggestions on how to teach a child to budget. I topped the article off with a budgeting worksheet for kids.
If your teenager already understands the basics of budgeting (as I went over in the post targeted towards kids), then the following tips should be a lot easier to enact. If not, I will offer some suggestions along the way on how to bring them up to speed.
During the teenager years is when I really started to bring home an income worth talking about. I made money as a kid doing odd jobs, but never had brought home a paycheck for obvious legal reasons. This is the case for a lot of teenagers and thus they find themselves ill prepared once they have a pocket full of spending money.
You should have your teenager track their expenses much like the way I suggested you teach a kid to budget. However, this is not the end exercise.
After a month or two of tracking even the tiniest expenses, they should tabulate all of their expenses into categories (eg fast food, gas, etc). This will allow them to view their current spending habits. If they have a checking account and debit card, they can use a service like Mint to automatically download and categorize all of their transactions for them. It may require some tweaking, but it does help by automating the process.
Once all of their expenses can be accounted for, you should go line by line and look for ways to trim the fat and other opportunities. Most likely you will encounter at least one of these:
- Shortfalls. How can they increase income? Decrease expenses?
- Needs vs Wants. Tell them how to determine needs and wants, and that they should be budgeted for accordingly. (car insurance gets paid before video games, for example)
- Impulse Buying. If it seems like every time they go to the Supermarket they pay $20 more than they were expecting, they may need to find a system to control their impulses. Hopefully a budget will help with that.
- Responsibilities. Maybe at 16 you will pay for the cell phone UNLESS they go over. However, they should know that at certain ages they will pick up more responsibilities. Tell them they need to pay for their whole cell phone bill at 18, in this case.
- No bail outs from the government of mom and dad. They should know that you will always support them, but that only goes so far. If they screw up, they need to buckle down. Don’t preach, let it happen. You want them to make mistakes and learn from them. Buying a $300 Xbox they can’t afford at age 16 is a much better mistake than buying a $400,000 house they can’t afford at age 27.
Now that all of the expenses are accounted for and you have helped them figure out where to cut down and how much to earmark for certain categories, they can move on to budgeting.
Explaining & Creating the Budget
With younger children, it’s easiest to just tell them that a budget is a paper that tells them how much money they have to spend.
However, as your teenager starts earning regular income from a job like babysitting or a paycheck from a company, they start understanding why they need to save for future payments like car insurance or the purpose behind an emergency fund. So the concept of budgeting should make sense to them. You just need to take it one step further and have them formalize the process and come up with a concrete budget.
The process, as I just said, should make sense to the teenager. If anything, the above exercise where they track their expenses should help them understand the purpose. If they are poor at managing their money, you may find this out when they still ask you for money to do “this and that” even though they are making money.
If they aren’t sure what typical constitutes income and expenses, you can go over this basic list with them:
Income: Paycheck, Tips, Side Income, Allowance, Gifts
Expenses: Auto (Insurance, Gas, Repairs), Food, Parking Permits (I had to pay to park at my high school), Medicine, Cell Phone, Utility Share, Charity, Emergency Fund
The first thing they should notice is that some of those expenses are irregular! If they don’t: POUND THAT IDEA INTO THEIR CRANIUM! If you don’t, they will get slammed during the months in which they have large expenses such as car insurance. This means they need to budget for car insurance every month and put that money aside.
Here is a sample budget I have created that you can use with your teenager. It is an excel document, so you need a spreadsheet program to utilize it. Since your teenager is most likely computer literate, I have made it so the spreadsheet auto calculates the totals in case they want to do their budget on the computer. There is a sample budget on the tab called “Sample.”
Encouraging your teen to develop and stick to a budget will hold them accountable to their finances. Imagine how awesome that will be for you AND them when they are adults that are responsible for their own finances. They will thank you when they don’t have $100,000 in debt to pay down at the age of 23.
If they are still receiving an allowance, try to give them a monthly one so that they learn to stretch it further. The weekly allowances you give younger children are not as productive or effective at an older age.
Required tools: A bank account, a source of income, expenses, a budget worksheet
Optional Tools: A financial aggregator like Mint, a debit card
Any More Applicable Advice?
Do you have an “out of the park” method for making budgets make sense to a teenager?
Do you have any improvements or suggestions on top of what I said?