5 key financial basics for teens
One of the most powerful things for your teen to be able to do is to track where their money goes, and that starts with budgeting.
Before your teen leaves home, they should know how to
- create a budget
- how to track spending, and
- how to save for the future.
While budgeting may seem like a hassle to some teens, research shows that young people who have good financial habits early on often grow up to be financially responsible adults.
You can help your teen solidify their budgeting skills with these tips:
- Create a Money List – Sit down with your teen and create a list of everything they consume regularly. A money lists allow young people to get a physical picture of their money and the ins and outs of their spending habits. At the top of the money list, have them write down their monthly income.
- Next, go through the list and write down how much they spend on their expenses which can include their bills, food, entertainment, clothes, and school supplies.
- Finally, have them add up all of the items on the list and subtract it from their available resources and then they will have an idea of how much they have left over to spend on other stuff or better yet, save!
Once they have compiled this list and understand what each expense costs, they will be able to plan their spending. This can be done by writing it down in a notebook or by using a spreadsheet, such as Microsoft Excel or Google Sheets, or using the Money Manager inside Green Country’s online banking.
From there you can continue the conversation about the importance of budgeting and smart finances. Here are a few basics you can share with them.
It is important a young person sees from where their money comes and to where it leaves. Over the course of a month, have your teen record each and every purchase so they can better visualize their spending. According to the American Institute of Certified Public Accountants, showing your child how to save and calculate receipts is one way to help them keep their spending on track.
Will they be spending money from a monthly allowance, financial aid, or wages from their job? Help them understand the importance of planning. Have them write down their monthly expenses like rent, laundry, food and monthly bills. Talk to them about unexpected or emergency costs and the prudence of establishing a “safety net” savings account.
Be a role model
When it comes to money habits, its up to you to normalize good money habits for them.
Budgeting is a tool and if you show them how you use it habitually it will become second nature to them, too. When it comes to money behaviors kids take their cues from their parents; being a good example of healthy financial habits is the best teaching you can provide. A couple of ways to do this can be to pair financial lessons with what’s important to them and by doing your bills in front of them.
Emphasize saving and giving
Another key component to budgeting is saving. When young people save that helps them build towards wealth.
A helpful way to do this is to create “spend,” “save,” and “give” accounts. Percentages of the money your teen saves can be deposited in their bank account, be invested, donated or spent on their financial responsibilities and fun.
Here’s an example of percentage allocations for deposits into each account:
- Savings and investing – 20% of their income should be deposited into their savings account for a rainy day, a big-ticket item, a vacation, or a venture that they would like to invest in.
- Giving – 10% of their earnings can be put away in the giving account to be used towards donations to a charitable organization
- Spending – 70% of their money should be spent on necessities like bills, groceries and toiletries. Once they’ve handled their business, they can treat themselves.
While your teen’s commitments and obligations may change, specifying percentage goals for their money is a great way for them to stay on track.
Not everything has to be done on paper. In fact, there are an array of mobile apps and websites that can help with budgeting, saving, and keeping track of all your finances.
These mobile apps can help your teen stay on top of their money spending habits while they’re on the go:
Green Country FCU has a money manager built into online banking, so when you sign your teen up for access, they will be able to set goals, label expenses as one-time or recurring, and more.
Here’s a few others we like:
Mint – Has a website and mobile app that allows you to create budgets, track spending by category, and provides personalized tips and advice about your money. The app can be linked to your bank, credit, and loan accounts and updates automatically.
GoodBudget – Mocks envelope budgeting. If you and your teen are splitting some expenses, this might be a good fit. Within the app, your teen can share their budget with you through their cloud technology.
As you and your teen plan for their finances after high school remember that you are their financial advisors and examples. What you teach them, and how you handle your own money, will help them when they are on their own.