Budgeting for Teenagers: Creating a Financial Roadmap for Life

The Path to Budgeting for Teens

Just like you teach your kids how to drive, you can expect to have opportunities to help them understand other life skills, like handling money.

72% of teenagers turn to their parent or guardian to ask for financial advice.¹ During these growing years, kids often become aware that finances are a big part of life. Similar to how they might be looking to you for help with their behind-the-wheel skills, they may turn to you with questions about the ins and outs of money.

They also might be bringing in their own money and wondering what to do with the cash. Among young adults between the ages of 16 and 24, more than half have a job.² Even if your teen doesn’t work now, the next few years may bring babysitting jobs, lawn mowing opportunities or pay stubs from working at the nearby pool.

Budgeting for Teens

Along with questions about money comes a golden teaching opportunity. You may want to show them how to make a teen budget and try to follow it, which can:

• Help teens understand where their cash comes from

• Show teens how to pay for their needs, like clothes and gas

• Encourage teens to value money

• Teach teens how to save

• Help teens plan for expenses they may have down the line, like student loans or car payments

Ultimately, a teen budget can help kids start to lay out a roadmap for their life. Learning how to budget now can prepare your teen for when they leave the nest and set a path for their ongoing financial journey.

How can a teenager create a budget?

One way to help your teen make a budget might be to talk about income and expenses. Income is the cash your teen earns. Expenses are what your teen pays for with their own money. Subtracting expenses from income can be used to create a simple budget. Breaking it down in steps can be helpful for kids to learn how to create a budget.

First, list out their sources of income. For example:

• A part-time job (like at a store or restaurant)

• Allowance

• Gifts for birthdays and holidays

• Completing chores at home

• Side jobs (like walking a dog or shoveling a neighbor’s sidewalk)

To make the learning opportunity more of a conversation, it might be helpful to think through where money is coming from. If your kid is looking for new or creative ways to earn money, there are many opportunities for teens. For example, your teen might be able to make money for working as a golf caddy, tutoring other students or even watching movie previews.³

Next, list possible expenses:

• Clothing (such as t-shirts, jeans, footwear, baseball hats and jewelry)

• Entertainment (like eating at the mall, going to the movies or paying for streaming services)

• Car insurance

• Cell phone bill

• Extra curriculars (like guitar lessons or travel soccer leagues)

It can be helpful to talk to your teen about what they like to buy. Teens in the U.S. dedicate about 40 percent of their spending to clothes, accessories and shoes.⁴ Your teen might also pay for things like new ear buds, a Hulu subscription or a video game. Having a conversation about expenses can help teenagers think through how they spend money.

If your teen wants to keep expenses down, you can talk about coupons and discounts. Kids might be able to get student discounts when they are in high school and college. Looking ahead, places like Amazon, J. Crew and the Apple Store often offer discounts to college students.⁵

What is a smart budget?

A smart budget is one that’s designed specifically for you or your teen based on your income and expenses. It adds up income and then subtracts the expenses from it. With this type of budget, you can see how money is used and how much is left after expenses are paid.

In addition to having a conversation about money coming in and going out, it can be helpful to set up some figures, such as dollar amounts. If your teen loves to talk about details, you might bring up the idea of using a spreadsheet. A budget planner on a spreadsheet could be used to add up income and then subtract expenses. This would show your teen what is left after paying for certain items.

Think of it like setting up a road trip with your teen. Just as you might look together on Google Maps to find the best route, decide where to stop to eat and look at how many miles you’ll cover, you can go over the details of your teen’s financial roadmap.

Say your teen works at a fast food restaurant and makes about $200 every two weeks. During that same time period, you give an allowance of $50. That’s $250 in income. If your teen then spends about $75 on eating out and $75 on clothes, these are the expenses. By subtracting the expenses from the income, your teen will be able to see the remaining available money. The spreadsheet could show this as:

If your teen uses a phone (95 percent of teens have access to a smartphone⁶), you might suggest a budgeting app. This tool can often tie to a checking account where your kid can keep cash. Budgeting apps also usually help you keep track of how money is spent. This helps teens see how money comes in and where it goes out.

How do I teach my child the value of money?

Going over budgeting basics can help teens set the stage for their future with money. You might look at the amount of money they usually have after their expenses during a month together. This presents a chance to talk about saving some of their money. You could talk to your teen about how much money they have that might not be needed right away and whether a savings account is the right place for it.

Your kid might want to save for an upcoming trip, a car or a new phone. You may also want to talk about setting aside money for college early on. If you look over college costs together, your teen has the chance to see what to expect for education expenses.

How do you teach teens to save money?

You can teach teens to save money by creating a budget together, talking to them about opening a savings account and showing them how to use financial apps to set aside money.

Most savings accounts offer savings interest rates, which is the amount your teen can earn over time by putting their money in the account. Say they put $250 in an account with a 2% interest rate each year. They could earn $5 after a year (as long as their money stays put). That $5 is more money your teen didn’t have to work for. This can help a teen see how savings accounts make it possible for funds to grow over time.

Just like you want to prep teens before handing over the car keys, getting them ready for their financial journey can pay off. As they watch their money grow over time, they can begin to understand the value of making a budget and planning for the future, whatever direction their path takes.