7 Budget Basics Your Teenager Should Know

Budget basics are key to financial education. It’s especially important for young people who are just learning to manage money. For teens, creating a simple budget is a key “Personal Finance 101” skill that can benefit them for life. Here’s what to say when teaching your teen money management.

Why budgeting makes you richer

The thought of budgeting scares many people—parents and teens alike. But the costs of not picking up budget basics could be high: A lack of personal finance knowledge could easily amount to $10,000 or more over a lifetime. Many overspenders end up in debt and require solutions like credit card debt relief.

A budget is really a spending plan. It teaches both teens and adults how to live within their means. The rewards? Gaining control of your finances and moving closer to achieving your financial goals. Living within a budget can help build a lifetime of lower stress and greater happiness.

If you’re a parent looking to help your teenager, these seven budgeting basics can help your teens create good financial habits.

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1. Plan budget goals

Key to building a budget is identifying short and long-term goals. A goal may be paying a monthly cell phone or auto insurance bill, buying sports or music gear, or saving for college. Whether driving or budgeting, you must begin with the destination in mind before making progress. Dollars and cents come into play after you know where you’re going.

2. Track spending

Record expenses for a month or two before attempting to change spending or income. A financial app can simplify tracking; you can also make a list on your phone or a small notebook. This track record helps you estimate expenses and keep the budget realistic. Expect to be surprised at how quickly small items add up.

3. Create a budget with goals in mind

Make a budget in whatever format works for you. Some teens like budgeting sites or apps that do the heavy lifting. Paper and pencil or a spreadsheet also work. You need something that lets you tally income and expenses—there are online budget templates that make this quicker.

Income may include earnings from a part-time job or an allowance. Expenses might include car payments, insurance, gas, vehicle maintenance, a bus or transit pass, cell phone bills, clothing, school supplies, and books. Discretionary expenses—“wants” versus “needs”—might include going out with friends, entertainment, hobbies, sports, and gifts.

Whatever budgeting tool your teen uses, it should subtract expenses from income. When the bottom-line number is negative or doesn’t meet your teen’s goal, help your teen figure out how to increase income or reduce expenses, and adjust the budget accordingly.

4. Develop a savings habit

Include a line item for savings. It’s an essential part of teen money management. This item falls in the expenses category, but it’s one that could benefit your teen’s future. Here’s what to do:

1. Set aside a percentage of your teen’s income for savings. A good starting point is 10%. 

2. When extra money comes in (from unexpected overtime or a gift, for example), build the habit of saving a percentage of that money.

3. Encourage your teen to use savings for important purchases. This may be a great deal on a car, a post-graduation backpacking trip, or a down payment on an apartment.

5. Stay accountable to the budget

Review and update the budget monthly. Look at where money goes and where it’s possible to cut back. 

It might feel pushy to ask your teen, “Can you replace that lunchtime burrito with a sandwich from home?” But this type of discipline will help put them on the right track to budgeting, saving, and good financial management.

After using the budget for a few weeks or months, you and your child might want to tweak goals. Reality might mean the brand-new car becomes a reliable used one, or the cellphone plan becomes part of a family plan. In the process, your teen will learn how to spend smartly.

6. Test-drive plastic with a debit card

Teach your kid how to use a debit card successfully before considering a credit card. A debit card looks like a credit card, but it pulls money straight from a checking account. If the money isn’t there, you can’t spend it—super straightforward. 

Debit cards and apps have replaced check registers as essential financial tools. Debit cards can remove debt from the equation entirely, and you can still use them to pick up budget basics. It’s like a test drive for credit cards, without the risk.

7. Use a credit card wisely—if at all

Older teens should approach credit cards cautiously. Applicants under age 21 need an adult co-signer or proof of adequate income. Some families believe it’s worthwhile to co-sign so that teens, particularly those in college, have a credit card for specified expenses. Others suggest young adults wait until age 21 and learn to use credit cards independently.

Convenience and building a credit profile are perks of the credit card. But teen money management skills are needed to avoid pitfalls. If you get a credit card for your teen, include every charge in the budget, and hold your teen accountable for repaying every dollar spent. 

Encourage teens to keep spending low and pay off the entire balance every month; teens who do so will find it easier to manage credit responsibly.

Budgeting apps

Budgeting tools like apps, templates, and calculators make it easier to budget than doing it long-form, by hand. You can find many budgeting apps on the App Store or the Google Play Store. Many apps are free, and once you link your financial accounts, they’ll automatically track expenses and income.

Budgeting templates

Templates are pre-made budgeting spreadsheets. Once you have a good template, you fill in the blanks with your numbers, and you’re ready to roll. You can import free budgeting templates like this one into Google Sheets or Excel to get started.

Budgeting calculators

Budgeting calculators help you calculate total expenses and income without an app or a spreadsheet that does it for you. These are like regular calculators, except they’re tailored to budgeting. Calculators make it easy to budget even when you hate math; they’re often free.

How to use a budget

Now that you’ve made the budget, what’s next? 

Here’s how to keep your teen accountable:

1. Plan ahead monthly. Do this together. What is your teen going to spend next month?

2. Have your teen record what they spend daily. You can typically do this on the actual budget spreadsheet. Some apps record daily spending automatically.

3. Review spending monthly. How much did your teen spend this month? More importantly, how closely did your spending stick to the plan? 

4. Rinse and repeat.

If your teen spends infrequently or uses an app, it may take less than two minutes to record daily spending. It’s satisfying, too—seeing how money flows gives teens special insight into how much things cost, and you can feel your control over your financial future grow.

Anticipate life taking U-turns. Your teen’s budget may change for many reasons, and that’s normal. What matters is learning from the twists and turns to make smarter choices. The longer your teen budgets, the more they learn, and the better at managing money they become.

Learning how to budget teaches lifelong skills

Get ahead of money management skills by teaching your teen early. Of course, there’s always more to learn. Thankfully, understanding how to deal with debt, money, and planning for your future can be simpler than it feels.