Be sure to assist your teen in creating a budget before they spend any money from their paycheck. Creating a written plan before spending is essential for financial success. Identifying wants vs. needs is the first step in creating a budget. All needs (bills, savings) should be paid before purchasing wants (concert tickets). Teens don’t have to pay a mortgage or buy groceries, so you may be thinking everything to them is a WANT! This is not necessarily true; you will see below that I challenge you to assign your teen financial responsibilities. Also, encourage your teen to include giving as a part of their budget. Teens should be aware of local charities that they can give to.
- Save the first 10% of earnings!
As adults we know that we should save and many of us have a problem with this. Savings should always be the first item in a personal budget. Your teen will best model behavior observed rather than said. If you have a hard time saving, explain some of the reasons why to your teen. Then make a savings pact with your teen to hold both of you accountable.
- Open up a checking account with your teen
Teenagers should experience how a checking account and debit card operates before moving out of the house. The days of balancing a checkbook are pretty much extinct. Go over monitoring debit card purchases on bank apps and websites. Also, explain that overdraft fees can occur if he/she does not monitor their spending. If your teen’s job is seasonal, be sure to have your teen close out the checking account at the end of their employment.
- Assign a bill or a portion of a bill to your teen
It is important for teens to have the responsibility of paying a bill. I had to pay my car insurance when I was a teen. Assign financial responsibility according to wages earned. If your teen is working 25+ hours a week earning minimum wage; have your teen pay at least 50% of their cell phone bill. If your teen is working 10-15 hours a week at minimum wage maybe require your teen to pay $30 a month on the cable bill. The bill assigned to your teen should be classified as a “need” within their budget.
- Set 3 financial goals with your teen.
It is important for teens to delay gratification by thinking of long term goals. Have your teen identify a financial goal they wish to achieve in the next 30 days, 3 months and 12 months. A 30 day goal could be to purchase a nice outfit or watch. While a 12 month goal may be to save up enough money for a used car.