Budgeting is a powerful money lesson for teenagers to learn. Before they leave home, it helps if teens know how to make a budget, track their spending and save for the future.
While budgeting may take a bit of time to learn and perfect, GoHenry research reveals that young people who develop good financial habits early in life tend to become financially responsible and independent in adulthood. In contrast, adults who don't learn about money management in childhood can struggle to save money and are more likely to get into debt.
If your teenagers are already earning their own money or you are giving them regular pocket money as a reward for chores or other tasks, there's never a better time to start teaching them how to manage their money responsibly.
Why teaching teens how to budget matters
When you teach teenagers how to budget, you help to set them up to have a better relationship with money in adulthood. A good financial education helps boost your child's earning power and improves their relationship with money in the future. The study by GoHenry, in partnership with Development Economics and Censuswide, found that 51% of people who were taught about money in childhood have up to £5,000 in savings, compared with 30% who were not. As many as 40% of those who didn't have any financial education in their youth admitted to having no savings and couldn't afford to save. They are also more likely to miss payments and get into debt.
Teaching teens how to budget helps them learn how to keep their finances in check. They can identify where they need to make adjustments in their spending and ensure they reach their savings goals. Learning how to budget also helps teens understand the benefits of preparing for unexpected expenses that can crop up, such as repairing their car or replacing a broken smartphone. Budgeting is a real-life skill that your teenager can practice every day to set themselves up for future financial success.
How to teach your teenager budgeting
Teaching kids how to prepare a budget doesn't have to be complicated. But if you're not sure where to start, here are our tips to make teaching budgeting easier and stress-free.
1) It always starts with the basics
When it's time to start teaching teenagers to budget, it's a good idea to keep things as simple as possible in the beginning. For instance, you can start by covering basic budgeting topics such as:
- What’s a budget
- Why you need a budget
- What a budget includes
Teach your teens to budget by explaining that a budget is a monthly spending plan. With a plan outlining where their money comes from and where it goes, they can avoid spending more money than they have and getting into debt. The foundations of a budget are income and expenses. It's good for your teenager to learn that they need to track their income, expenses and leftover money. Once they've mastered the budgeting basics, you can go into more detail by touching on the importance of saving and investing, and expected and actual expenses.
2) Give your teen regular pocket money to help them understand earning and budgeting
Giving regular pocket money to your teenager is a great way to introduce the concept of budgeting. A budget can help them understand how to make their pocket money go further to afford bigger-ticket items by managing their money.
Pocket money helps teens get into the routine of managing money and thinking about where each pound goes.
With GoHenry, you can set up regular pocket money payments to your teen through your parent app. Your teen can then manage their money through their own app, while using their own prepaid debit card to spend their money. Alongside this, GoHenry teens get access to in-app Money Missions, where they can expand their financial education and learn about money basics, investing, saving, compound interest, borrowing, giving, and more.
3) Track spending
As they learn about budgeting, it's important that teenagers see where their money comes from and where it's going. In the GoHenry app, both parents and teens can view transactions for the last 12 months on the website and eight weeks via the mobile app. Parents can also keep an eye on their teen's spending habits with real-time notifications whenever their teen uses the GoHenry prepaid debit card.
4) Wants vs needs
Understanding the difference between wants and needs is an important step in teaching your teenager about budgeting. Keep it simple by explaining that a need is something they require to live, such as food and paying rent, while a want is something like a new mobile phone. Money Missions can help your kids get to grips with the differences between wants and needs and how to use a budget to prioritise what's important.
5) Income vs spending
If your teenager receives cash from pocket money, chores or wages earned from a part-time job, you can help them understand the benefits of planning. Encourage them to write down their monthly expenses. This will depend on their age but might include:
- Travel costs
- Monthly bills
Talk to them about how much money they have coming in versus going out and help them balance the two.
6) Budget categories
How can a teenager prepare a budget? The easiest way is by using categories. Breaking down a budget into categories can help teenagers pick what they want to spend their money on. They can then decide how much money they want to allocate for each category. For example:
- Clothing — 25%
- Personal care — 15%
- Going out with friends — 35%
- Mobile phone — 10%
- Saving — 10%
- Giving — 5%
For a budget to be successful, it needs to be actionable and relevant to teenagers. This will encourage them not just to make a budget but to stick with it too. You can then help them check it at the end of the month to see if they have spent what they budgeted for.
7) Teach budget adjustments
Explain to your teen that one of the most important factors in making a budget work is looking at it regularly and adjusting it. They also need to think about their plans and ensure they save enough to meet their financial goals. This could mean your teen has to adjust some of their budget categories in the short term and go without some of the things they want.
8) Use budgeting apps
Managing money is a skill that most people, including teenagers, should learn. It's not an inherent talent that we are all born with. Fortunately, budgeting apps can help your teen with their budgeting and saving goals.
GoHenry allows your teenager to stay on top of their spending and saving habits, even on the go. They can monitor their spending and set saving goals. And there's always the safety net that they can never spend more than what’s on their prepaid debit card, should they not stay on track.
How to get a teenager interested in budgeting
One of the best ways to teach young adults to budget is to talk to them about their money goals and how a budget can help. For instance, if your teen wants a new game console or even save up for their first car, it's your chance to talk to them about budgeting and how to make this happen.
Why not demonstrate using apps and tools like GoHenry. A GoHenry prepaid debit card will help them feel more in control of their money.