How to budget for teenagers: 7 tips from financial experts

Your teen has lots of options when it comes to creating a budget. Some obvious choices are using a spreadsheet or budgeting app to track expenses. But if you want an all-in-one account that will teach them how to earn, spend, and save wisely, consider a prepaid card.

One of the most popular prepaid cards for teens is Greenlight. This platform lets you track chores and allowances, control how and when your teen spends their money, send instant transfers and award one-time bonuses for good grades. There’s even an integrated investing platform where your teen can learn to invest under your watchful eye. You can sign up for Greenlight for $4.99 to $9.98 a month depending on the plan you choose. This price includes debit cards for up to five kids, making it an inexpensive option for big families.

Be aware of the three major financial decisions that will come at your teen quick: college tuition, credit cards and buying a new car.

All three of these have major institutions and companies that will aggressively target you and your teen to spend your money with them. That’s no mistake. Spend more time than you think necessary deciding on a college (and the ROI for the amount of loans you might need to take out), understand how a credit card works and the temptation that goes with them and never buy a new car. The decisions you make from age 17 to 19 will impact you, for better or for worse, for the entirety of your 20s.

Where do you believe teens waste most of their money?

By far clothing and food. Food is a sneaky expense , because it’s generally in increments that do not catch our attention — $8 to $12 a meal. But as we know, this can add up quickly when you’re spending consistently. I often see kids eating out twice a day, with expensive coffees, smoothies, etc. Since most teenagers would never dream of budgeting, the actual cost of their monthly choices is never tracked. Therefore, they’re not aware of the overall total.

The advice I would give to a teen is to learn how compound interest works, because it underlies every other major financial concept they’ll need to learn down the road. When learning about saving, investing and retirement, teens need to learn that compound interest is a powerful force that can work for them — especially if they start saving early. On the other hand, compound interest will work against them in the case of credit card or other debt. Learning about compound interest is a great way to understand that financial decisions can have long-lasting impacts and that teens would rather have compound interest working for them rather than against them.

At what age should young people learn to balance a checkbook?

Junior high is a great time to introduce the concept of expense tracking. Teens are mature enough to understand the concepts, and will hopefully learn good habits before they start driving and have a bit more independence. These days, teens don’t need to learn to “balance a checkbook” in the traditional sense. Rather, they need to learn how to track their expenses, understand how to check a bank balance and understand that their money is finite.

Teens need a clear sense of purpose. Money is solely a tool to help them reach their purpose. But without a clear direction, their money behaviors will lead them astray from what actually makes them happy. These are constantly moving targets, so communication about money is absolutely essential. Social media and advertising do a great job of telling us where it thinks we should be spending our money, time and attention, but their best interests are not our best interests. They’re quite the opposite.

When determining your money values, answer the following questions: Why do you want money in the first place? What will more money enable you to do? How much do you judge yourself by the brands you buy? How much do you judge other people by the brands they buy? How do you want to spend your time? How can money bring you happiness?

Should teens be rewarded financially for good grades? Why or why not?

Yes, but not for chores. It may work for some, but it’s not for everyone. I believe a young adult needs to learn skills inside and outside the workplace. They should be valued financially for their contributions in the workplace (getting good grades) and not for their contributions at home (because as adults we have to do them anyway). You should also clearly explain to your teen why they’re being rewarded. This helps make a connection to their future employment and the value of solving problems and working hard. It’s about modeling adult behavior — not cheap prizes.

Look at the money that you made and where it ended up. Ask yourself if you executed on your game plan, and if not, what can you do this month to stick to it. This evaluation will probably only take 20 minutes, but can get you thinking the right way about money and prepare you for adulting.

Where are teens wasting the most money?

I don’t believe teens really waste their money any differently than anybody older than them. The only reason they buy something they don’t need is because their money doesn’t have a specific job. If you don’t give each dollar a specific responsibility, it will quickly leave you. However, if you are diligent with your money and give each dollar a job when you splurge you aren’t really wasting anything.

Whether your teen has a job or earns money through birthdays or an allowance, they’ll want to start saving at least 10% to 20% of their money. So if they earn an allowance of $15 a week, they should at least save $1.60 to $3.20 each week. To put it into perspective, if they save $3.20 every week, your teen would have saved $12.80 by the end of the month. And in one year, they would have saved about $153.60.

If you’re not going to open a savings account for your teen and opt for a piggy bank instead, make sure your child has more than one piggy bank. If you keep one piggy bank, you’re not teaching your teen the concept of keeping their spending and savings separate. So instead, give your teen two piggy banks. One for spending and the other for saving. And if you want your teen to donate, you can get a third jar for giving.

How much money should teens have save by age 18?

There’s no set amount of money your teen should have saved by age 18 because there’s no guarantee they’ll work in high school. Some teens may work regular part-time jobs, but others may only work during the summer. Others may not work at all if extracurricular activities take up too much of their time.
That said, the earlier your teen starts saving the better. Encourage them to save 10 to 20% of all the money they receive — whether that’s through a paycheck, birthday money or an allowance. This will help them get them in the habit of saving, which will put them one step ahead of the rest when they get their first full-time job.

Budgets often get a bad rap. People think they’re boring and restrictive. But they’re actually the opposite. Budgets are empowering. They allow your teen to take control of their finances and build the life they envision for themselves. The sooner they learn this — and believe it — the better.

One way to help your teen get in the habit of budgeting is to make it fun. Consider making games or financial quizzes with prizes. Show them the value of financial knowledge.