Teaching Your Teen How to Budget

Putting the words teen and budget in the same sentence is enough to incite fear in many parents. Teaching teens about money is often difficult, but it doesn’t have to be. The trick is to start with the basics and take it one step at a time. Teens must first understand the difference between pre- and post-tax money before they can fully grasp the concept of a budget. They also should comprehend fully the importance of saving. Remember, perception is everything to young people. Start out by explaining that a budget is not a restriction, it is a plan for spending so they have the freedom to use their money within reason and without worry.


When teaching your teens to budget, listing their income is a good place to start. Talk with them about the different sources of income, including money from work and allowances. Teach them how W-2 income differs from 1099 income. You want your teens to understand that most of their income will be taxed and they will have to file taxes every year. They should also have at least a general understanding of what that means and how it will affect them. If a relative gave them stocks or bonds over the years, you should discuss the basics of the stock market, and interest and dividends. Here are the most popular sources of income for teens.
• Wages from a job (W-2 income)
• Allowance
• Tips
• Gifts
• Freelance work (1099 income)
• Interest and dividends (if applicable)
They also should know the difference between fixed and fluctuating income.


Next, talk about expenses, to help them prepare for that month and track their money. For instance, they may have an “automobile” category that includes the monthly payment, insurance, gas and maintenance. Help them set up categories that are relevant to them. It is also helpful to establish the difference between a need and a want. A new smartphone is a want, buying groceries is a need, for example. Some common teen expense categories are:
• Automobile: payment, insurance, gas, maintenance
• Savings
• School supplies
• Groceries: eating out, snacks
• Phone
• Entertainment: sports, music, friends
• Personal: clothes, toiletries, vitamins

Credit Versus Debit

Learning about credit versus debit will also teach them a great deal. Explain that expenses are debited from the account. When cash is paid out, the account is credited. In the accounting world, when one account is credited, another must be debited to maintain the balance. So, help your teens creates a budget, for the month or for a few months. Write down the total income minus each expense and see what is left at the end of the month. Creating a budget for a few months at a time allows them to see how their income and expenses may differ from month to month.

GCEFCU’s Student Checking Account

Now that your teens have a basic understanding of how a budget works, they may be ready for a Student Checking account. It is a simple checking account for students 13 to 17 years old, with a guardian as a joint owner. They will have their own debit card and online banking login so that they can review and track their purchases. The Student Checking account is designed to help them gain financial independence as they work their budget. Help your teen set savings goals along the way and explain that working with a budget constitutes a spending plan. Above all, be patient and explain that it may take a couple of tries to get it right.