The best time to teach your teenagers about budgeting was yesterday. The second-best time is now.
Managing money poorly is easy to do and hard to fix, so the sooner you get your children started on the basics of finances, the better for them to understand what it takes to be a responsible adult.
If you’re unsure where to start, rest assured: it’s easier than it seems. Here are eight infallible tips to get your teen started on the basics of budgeting ahead of their college days.
1. Help Them Understand Their Earnings
Budgeting can feel incredibly overwhelming for kids and teens if you don’t start right at the beginning. That’s why you should make them familiar with the most basic financial concepts as early as possible, and earnings and expenses are as beginner-friendly as you can get.
Start with the easiest one. Sit down with your teen and go through their monthly earnings. Whether it’s just their allowance or also the income from their first jobs, help them lay out the precise numbers of how much money they have available each month.
After they understand the basic concept, start to introduce more complex topics. Show them the difference between gross and net income, and how to estimate income if they’re an hourly employee.
2. Show How Much They Spend
While they’re under your roof, most teenagers have the advantage of not figuring out how much it costs to have the lifestyle they’re used to.
A good tip to help them start budgeting is to show them how much living costs are. Start by making them list their monthly expenses, then share the household’s monthly expenses in bills and miscellaneous expenses. Then, together, you can calculate an approximation of how much they consume each month.
This is a simple way to make them aware of the real cost of living and open up a conversation about what the future awaits once they leave for college.
3. Note the Differences Between Fixed and Variable Expenses
Once teenagers understand the basics of income and expenses, it’s time to elevate the bet and make things a bit more complicated. Specifically, understanding the difference between fixed and variable expenses is one of the most life-changing aspects of budgeting.
In high school, some fixed expenses they may have to worry about are a cellphone bill, an internet plan, or a car loan—that is, payments that remain the same from month to month. Variable expenses, on the other hand, are changeable and unpredictable, such as the cost of groceries or new clothes.
Differentiating between them can be key to helping teenagers understand their spending baseline, prioritize expenses, and adjust their spending according to circumstances.
4. Help them Separate Needs and Wants
While teens are notoriously passionate about their interests—which can make them feel as if they need rather than want them—the confusion between the two terms goes beyond that. It’s essential to understand the nuances and differences and guide them ahead of their college years.
For example, food is a need, but visiting a trendy restaurant is a want when you can eat at home for much cheaper. Likewise, having shoes is a need, but expensive designer models are a want.
Helping them develop the judgment skills to differentiate between both can help them save on a few variable expenses, according to their means.
5. Teach Them Different Budgeting Methods and Techniques
After they’ve understood the most essential elements of budgeting, your teen is ready to learn the techniques to make it happen. This is when actual budgeting comes in.
They need to understand that budgeting isn’t reducing expenses by cutting out fun stuff—it’s just a system that helps you plan how to use your resources wisely so you don’t lose track when life gets unpredictable.
To do this, there are countless systems in place worth exploring. For example, the famous 50/30/20 method encourages you to spend 50% of your net income on needs, 30% on wants, and 20% on savings, while the traditional budgeting system sets a limit on how much you can spend and directs the rest to savings. For a step-by-step approach tailored to college life, check out this college student budgeting guide, which explains practical strategies for managing money during school.
There is no right or wrong technique, so discuss with your teen which method works best for their goals and lifestyle. Likewise, there are plenty of budgeting apps that can make the process smoother.
6. Take Them Grocery Shopping
There is no better learning experience than hands-on practice.
Start to get your teen involved in grocery shopping to give them an up-close look at the most essential part of living alone. Not only will they get familiar with food ingredients, average costs, and the process of shopping, but it can also give them insight into the thinking process behind it all.
What foods are cheap yet nutritious? How can you make the best out of the ingredients you’ve got? Can you make a few different meals with the same five ingredients? All of these are key aspects of successful budgeting and successful adult life.
7. Brainstorm Together Different Ways to Improve Earnings and Savings
While budgeting is key to managing finances, you can also lend a hand.
As you teach finances to your teen, they’ll most likely come up with ways to improve their income and reduce their expenses. Join them in this brainstorming session and suggest multiple ways they can earn some extra money to support their budget and lifestyle.
To reduce expenses, your teen can start by checking free textbook resources online. If free options aren’t available, DirectTextbook is a trusted platform where students can buy used textbooks at lower prices. Renting textbooks is another smart way to save money, since rentals usually cost much less than buying new and are perfect for books they’ll only need for one semester.
8. Go Beyond Budgeting
Teaching your kid how to budget is only the first step in financial literacy for teens and college students. It’s the cornerstone, but not the whole picture.
If you genuinely wish to set your child up for success, you need to go beyond the spreadsheet. Teach them everything they need to navigate credit, debts, savings, retirement, and every other complex financial topic that will play a role in their lives.
Some of the topics to cover include:
- Account types.
- Student loans.
- Credit score, credit cards, and Buy Now Pay Later systems.
- Interest rates.
- Investment.
- Taxes.
While this may be complicated to cover at home, discussing it even at a basic level can make a difference and lay the groundwork for a responsible adult who will understand how to make wise financial choices once they leave home.