How To Create A Budget For Your Teenage Kids
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By the time they're teenagers, most kids begin tugging hard at their parental leashes that hold them to childhood. They want to be treated as adults, but in many cases lack the fundamental life skills that will enable them to function as adults — skills like budgeting. You can make a budget for them, of course, but financial blogger Dave Ramsey suggests that taking a purely instructional approach may backfire. Instead, let your teenager take as much control as possible while offering a little — or a lot — of guidance.
Set Savings Goals
Dangle something out there on a horizon that's reasonably within striking distance. Ask your teen what big ticket item he’d like to call his own in a year’s time, like his first car. Then pinpoint the cost of the dream once you’ve identified it.
Don’t tell your teenager what you think a used car will cost — let him do the research and see for himself. Then divide the cost by the number of months between now and his target date so he can begin saving.
Where’s the Money Going?
Identify your teen’s spending habits. Did he stop somewhere for a snack after school today? If he’s already driving, did he put gas in the car? Get a handle on his discretionary spending and put a monthly or weekly number to it. Then add this amount to any regular bills you expect him to pay from his own funds.
“It's a good idea to have him budget for things that you would normally pay for yourself,” says Luis F. Rosa, CFP, EA with Haydel, Biel & Associates in Pasadena, California. “Say you typically spend $200 on school supplies. You can give him an additional $20 in his allowance for the 10 weeks leading up to the beginning of the school year so he can save the $200 on his own. If he spends $50 of that money on something else, perhaps he won't have enough left to get that cool new book bag.”
Funding the Budget
Next tally up your teen’s income from all sources, such as an allowance you give him or wages from an after-school job. Let him control that money.
“If you're giving him a weekly allowance, don't hold the money for him and give it to him as he needs it during the week,” Rosa says. “Instead, give it to him all at once and stick to your guns! If he’s spent his whole allowance by the middle of the week, don’t give him more until you're due to give him his allowance again. Next time, he'll think twice before spending the entire allowance all at once.”
The Bottom Line
Your teen’s expenses, plus the amount he’s decided on for savings, should be less than the money he has coming in each month from all sources. Let him decide what he wants to do with any surplus — that's his reward.
Of course, there’s also the possibility that his expenses and savings will exceed his income. If he’s not already working, you may want to suggest he get a part-time job. Maybe he can take on more responsibility around the house, and you'll bump up your financial contribution accordingly.
A teen’s budget is really no different from an adult’s — income, less fixed and variable expenses along with savings, should be a positive number. You can make the process easier for your teenager by using software like Quicken Starter Edition that makes budgeting visual and simple.