Good budgeting is key to your teen effectively managing their own personal finances. The sooner they start keeping one, the better. Encouraging your teen to develop a budget helps them become more accountable for their own finances. Because as a parent, your goal is to teach your teen to achieve a healthy balance between Money In & Money Out.
Tips for Helping your Teen Learn About Basic Budgeting:
Show Me The Money! First, your teen should spend 1-2 months keeping a money diary–writing down every purchase, even the smallest expense. With their expenses down on paper, they can see where their money is going, and what spending habits need to change. Record-keeping must be as specific as possible.
Adjust After Tracking. After keeping their money diary, help your teen make a list of potential cutbacks–areas where they can get by with spending less. Help them make adjustments each month as they discover what works, and what doesn’t.
Consider Monthly Over Weekly. Consider providing them a monthly allowance, rather than weekly. Require they make the money last an entire month, and encourage him or her to accurately record what’s been spent and where it was spent. Here’s a suggestion: consider giving them a Prepaid Student Card and each month add their allowance to the card. A spending record will be available for them (and you) to review. They will feel very adult-like with a plastic card of their own and you have a great tool to help them manage their money. When the money is gone, don’t add any more until the beginning of the next month.
Make the Wish List. After devising a budget click here for a Spending Record Spreadsheet, they should create a “Wish List” of things they’d like, or need, but can’t afford right now. A lot of teens can achieve their Wish List once they stick to a budget. Help them make it a goal to purchase at least one Wish List item.
Address Shortfalls. To help address budget shortfalls, suggest ways your teen can earn more money, or cut back on expenses, such as renting a DVD to watch with friends rather than go to the movies; or maybe car pooling through the week to save on gas for the weekend.
Determine Needs vs. Wants. Show your teen how to modify a budget by categorizing expenses as needs (expenses that are unavoidable) and wants (expenses that could be cut if necessary).
Control Impulse Buying. Encourage your teen to think spending decisions through, rather than impulsively buying items right away. Show your teen how comparing prices or waiting for an item to go on sale can save money.
Determine Responsibilities That Are Age-appropriate. As spending responsibilities are shifted to your child, she’ll have to budget for them accordingly. For example, if she’s the one to pay for weekend activities, she’ll need to effectively manage her money by putting these items into a spending plan. Also, let them know spending responsibilities will typically increase with their age. But they can also increase if your teen starts to exceed your ability to provide. For example, if junior wants a car and you’re not going to buy him one, he’ll have to adjust the budget to expand his savings so he can purchase the car on his own.
No Bail Outs. It’s very important to resist being your teen’s financial savior. If he or she can depend on you to come up with all the extra cash, they may never fully learn to manage money wisely. But at the same time, don’t be preachy and judgmental–no doubt he or she will make spending mistakes along the way. Your teen needs to know they can always come to you for information, support, and advice.
Below are some rapid-fire, quick tips. Advise your teen to:
Resist impulse buys
Don’t go shopping with friends who spend a lot
Tote their lunch to school (or work) as much as possible
Stay away from vending machines and convenience stores
Only visit an ATM once a week (plan ahead for needed cash)
Entertain at home
These simple budgeting lessons can last a lifetime. Never stop working with him or her on how to use money. Your teen will be much better prepared to function in the real world.