Teenage Money Management (Comprehensive Guide for You AND Your Teen)

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How to manage your money as a teenager? From first paychecks to first cars – this guide will help both YOU, and your teen figure out teenage money management.

teenage girl getting selfie taken, text overlay "comprehensive guide: teenage money management"Kids turn into teens, and with that comes changes to their money situations – both in the amount of money in their control, and in their money responsibilities and expenses.

Because of all these changes in a teen’s income situation, AND because they’re not adults yet with real bills and real jobs, teenage money management deserves its own guide.

For example, teens are likely to deal with first paychecks from after-school/weekend jobs, thinking about how to save up for a car, and blurred lines between what is the parent's responsibility to pay for and what is their responsibility to take care of – all of which are new money situations that call for different money management skills.

This guide is written for both parents AND for teens to read through – after all, it takes both of you partnering up together for teen money management to work (I’ll explain more about this below).

We’ll start out with the basics so that you both understand what money management is, and what the overall goal is.

What is Money Management?

It’s always a great idea to know exactly what you’re trying to do, and so I thought I’d start off by explaining to you and your teen what exactly money management is.

Here’s my definition of money management (whether you're an adult, teen, or kid):

Money Management is the collection of decisions you make and the actions you take with the money you have in order to get the best possible outcome (both immediately, and in the future). These decisions include how to spend it, how to save it, how to invest it, and otherwise, how to use your money.

There are many ways that money management for teens is the same as money management for parents. But there are also a few key differences that we’ll go over next.

What Makes Money Management Different for Teens?

For starters, teens are in control of less money than an adult is. At the same time, teen expenses are less (and, probably, the lowest they’ll ever be in their life – even though it may not seem that way!).

Also, teenage money management is largely dictated by the degree of parental control in your household.

In other words, it’s a real partnership between parents and teens, because you’re both intimately involved in the money-earning, and money-spending.

For example, parents control:

  • Whether or not you give your teenager an allowance/chore commissions
  • Whether or not you allow them to work at a job
  • Whether or not you open a custodial bank account for your child
  • Whether or not you allow them to have a debit card or be an assigned user on your credit card, or you stick with cash-only
  • What expenses you expect your teen to be responsible for, versus what you pay for

Another thing that makes teen money management different from managing money when they were a kid, is the sometimes scary, large purchases that are on the horizon.

I’m talking about things like a car, college, first apartment, etc.

Because of this, teens may need to start using portions of their own money to save up for these big transitional moves (which is a conversation you both need to have so that everyone understands expectations).

Which is very different from when they were 8.

Let's move into the steps for managing your money as a teen.

How to Manage Your Money as a Teenager

I want to outline the steps that will show you and your teen how to manage their money.

This is a high-level view, and then you can continue reading further below for information on specifics, such as common teen expenses, teen money management apps, and common teenager financial problems.

Step #1: Get clear on your income sources

Your teen will need some actual money to manage — it doesn't appear out of thin air!

Sources of income for teens include:

  • Allowance
  • Chore commissions
  • Teen entrepreneur kits/creating their own job
  • Side hustles (mowing the lawn for neighbors, babysitting, etc.)
  • Part-time Job (cashier, waiter/waitress, etc.)

Step #2: Set up a banking system

It's likely time to upgrade from a money jar or piggy bank (if they're still using one), and instead get them into the banking system.

You can set up a custodial bank account for your teen, one that is associated to your own bank account so that you can transfer money to theirs (if you choose).

Other decisions you'll need to make:

  • Will you open both a checking and savings account for your teen, or just a savings account?
  • Will your teen be allowed to use their debit card with the checking account, or do you prefer for them to use cash, or even a prepaid debit card?
  • If they have a debit card, will you allow them to overdraw on the account, or will you opt out of overdraft protection so that they'll get declined at the time of purchase if they don't have the funds to cover it?
  • Will you add your teen as a user on your own credit card?
  • How will money flow between you and your teen for them to pay any money responsibilities (like a portion of their cell phone bill), and for you to give them allowance (if you're continuing that)?

Step #3: Establish the money rules

You'll need to have several key conversations (and ongoing conversations) about money rules, money responsibilities, and money boundaries. They'll be shifting as your child ages.

Examples of Money Rules:

  • Spending thresholds that, if your teen wants to spend over, has to be okay'd by you
  • Categories of items they're allowed to buy, and ones they're not allowed to buy (even if it's their own money)
  • Giving rules (some kids tend to give away all their money, or perhaps you have giving rules as part of your money values that you'd like to pass on)
  • Saving money rules (if you want your teen to set aside a certain portion of all their income into savings for something else, like college, or their car)
  • etc.

These conversations will also help set up expectations for your teen so that they can understand what their expenses are, which they'll need to know to set up their budget.

Step #4: Set up a budget/spending plan

Your teen will want to sit down and write out a spending plan or budget for their money.

The spending plan will help with how they'll treat each of the dollars that comes through the door. The budget will show them the real numbers that are coming in, and that must go out.

You'll want to refer to the section on “how can a teenager prepare a budget?” below for more information and resources.

Step #5: Track their finances

Everything is set up, things are in motion, and there's just one more thing your teen must do: set up a way to track their money.

Track their savings. Track their spending. Track their money's growth.

You'll want to refer to the section on teenage money management apps below for more information and resources.

Let's move onto what possible expenses your teenager might include in their budgeting and spending plan.

List of Possible Expenses for a Teenager

Let’s be honest: this list of possible expenses for a teenager really is a conversation between you, the teen, and you, the parent.

Who is going to pay for what?

Parents need to set money boundaries, meaning figuring out where a parent's money ends and a teen's money begins.

Money responsibilities and money boundaries shift as a kid ages, until one day, they turn into adults and they’re 100% responsible for themselves. As a child ages and is more capable, they need to be put in charge of some of their own expenses.

It’s one of the most logical ways for them to learn how to be financially responsible.

So, some of these listed expenses are going to border on/be needs, while others are going to be possible expenses a teenager may incur on their own (by choice/want).

And which ones your teen has is going to result from the money responsibility conversations you have together.

Teenager Expenses:

  • Data overages
  • Gas
  • Car insurance
  • Weekend activities with friends (like going to the movies, or spending money for the mall)
  • Makeup
  • Christmas gifts for siblings/friends/parents
  • After-school snacks
  • Video games
  • Insurance deductibles for any accidents
  • Name brand clothes (vs. the basics you buy them)
  • Items they break or lose (like breaking an iPhone screen)
  • Unnecessary (but desirable) upgrades, such as buying branded sneakers instead of more reasonably priced ones, or branded clothing instead of what would normally be bought
  • Money penalties (parking ticket, late library fee, etc.)
  • Lunches from the cafeteria (because they can either pack a lunch from home or buy one from their own money)
  • PS4 account/Microsoft account

Next up, I want to address why your teenager wants to have a savings goal, and why they want to get into the habit, now, of saving money.

Reasons to Save Money as a Teenager

You might be wondering what exactly a teenager should be saving money for?

To be honest, without a savings goal to save up for, money just kind of slips away (amiright, Mama Bear?). You spend it on a new shirt, or a new body splash, or on your data overage charges, or any other number of places.

Instead, you want your teen to have a REASON to save their money to motivate them to get into the habit of saving.

Not to mention, your teen has some potentially large purchases in their not-too-distant future, and them saving money towards those may be part of your family savings plan.

Below is a list to answer “what should I save up for as a teenager?”:

  • To pay for a car
  • To pay for car insurance
  • To help pay college tuition
  • To pay for college textbooks
  • To cover your insurance deductible in case you're in a car accident
  • To pay for room décor that your parents won’t pay for
  • To pay for horse riding lessons
  • To pay for first/last month’s rent/security deposit on their first apartment

Psst: you'll want to check out my one-page goal setting worksheet to help with savings goals. 

Below, I’d like to give more ideas from actual examples of what teenage girls and teenage boys have saved up for.

Example Things to Save Up for as a Teenage Girl

  • Prom dress (this is one of the first successful savings goal I had for myself!)
  • Vacation spending money
  • Save up for an iPhone as a kid
  • A horse (for real — I had a mother tell me her teen saved up for a horse!)

Example Things to Save Up for as a Teenage Boy

  • Vacation spending money
  • Smart TV
  • Skateboard
  • iPad
  • Computer

Next up, let's discuss common teenage financial problems so that you can (hopefully) work around or through them.

Tip: Remember that avoiding financial problems all together is not ideal; think about how much you can learn from a money mistake, and how much better it is for a teen to make a money mistake NOW, when their mortgage payment doesn't depend on them getting it right, versus in the future.

Common Teenage Financial Problems

Next, let’s talk about some common financial problems teenagers face – either of their own making, or obstacles that are just part of life they’ll have to account for in their money management.

  • Pressure to buy, wear, and use the best on the market, which can get costly.
  • Losing sight of why they’re saving money at all, so spending it instead.
  • Overwithdrawing on their checking account (and getting slapped with a $30 fee on top of that).
  • Debit card decline at the cash register.
  • Losing the battle between instant gratification and delayed gratification.
  • Wanting to buy something with your own money that your parents don’t give permission for.
  • Not saving up for something because you think your parents might pay for it.
  • Shifting from an allowance/chore commissions to job, and the family figuring out where and when it makes sense to stop or decrease the amount of allowance/chores they’ve been getting.
  • Not having enough money set aside to pay for gas each week for their car.

Some of these problems can be prevented by setting up a budget and learning how to spend your money wisely, as a teen.

So, let's dive into that!

How to Spend Money Wisely as a Teenager

If you want to spend money wisely as a teenager, or help your teen spend their money wisely, then you've got to do a few things:

  • Get clear on your money values
  • Get clear on your money responsibilities, so that you can put needs ahead of wants
  • Come up with a spending plan that lines up your money values and money responsibilities
  • Set up savings goals so that you can always be working towards what you want to be spending your money on

No matter what amount of money you have at your disposal, you can come up with a spending plan for it based on what matters to you (your money values).

In order to do this, you want to write out a spending plan for every dollar that comes through your hands.

This means coming up with a percentage of how much of each dollar you'll spend on needs/wants, what percentage you'll save, what percentage you'll invest, and what percentage you'll give away, based on your own priorities in life.

Since this is teen money management – you still live at home, and you're under 18 – you'll also need to sit down with your parents and get a better understanding of your money responsibilities. A great way to do this is to go through the Allowance Plan together, a free printable I created.

If you stick to around what your percentages are each month, and you can cover your needs above all else (these are the things you are responsible for paying for), then you'll be spending money wisely as a teenager.

Let's dig a bit more into teenage budgeting.

How Can a Teenager Prepare a Budget?

Now that you've got your money values set, let's take that a step further and give you some tools so that your teen can set up a budget.

To set up your budget, you need to know how much money you have coming in, your expenses, and your priorities to spend money on (from those spending percentages).

You want to fill out an ideal month (knowing that stuff comes up and things change) to give yourself an idea of whether or not you're earning enough to cover your expenses and future priorities, or if you need to cut expenses/earn more money.

Here are several teenage budget worksheets that can walk you through this process:

Remember, you're setting up a PLAN. It's a good thing to do, because then when things go wrong, you can sit back down with your plan and have something to compare what's actually going on to what you had planned. Then, once you're aware of the problems, you can fix them and adjust your plan.

Now that you've got a budget set up, a great way to track everything and see how you're doing is by using one of these teenage money management apps.

Teenage Money Management Apps

Your teen is living in quite a different age than the one we grew up in, Mama Bear. When I was a teen, there weren’t any money management apps for teens OR for parents!

Now, the financial industry's filled with money management apps. Your child will likely use an app for their banking, for their investments, and to track various other things as an adult…so why not get them started with a teenage money management app as well?

Psst: you'll want to check with your teen's bank as well, as they might have a banking app that has budgeting/management functions.

Here are a few of my top picks:

  • FamZoo: This app tracks allowances and chores, as well as syncs with a plastic card your child can use for spending (prepaid debit card). But it's more than that – you can use this feature for family-shared bills where your teen pays YOU for their money responsibilities for the services or products they use each month. That's a really handy feature as your teen ages and their money responsibilities grow.

  • Wally App: This is an easy money management app that tracks your spending. Your teen will need to manually input each of their purchases (which can help them with awareness), or take photos of their receipts.

For Goal-Oriented Teenage Money Management Apps, be sure to check out the free Plan'it Prom, which takes your teen through the budgeting and goal-saving process of planning (financially) for prom, and the free Teen Entrepreneur Toolbox App, which has a nice area for setting, tracking, and meeting a savings goal.

Psst: you'll always want to check out my review of the best allowance and chore apps for teens + kids.

 

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Amanda L. Grossman is a Certified Financial Education Instructor, a 2016 Plutus Foundation Grant Recipient, and founder of Money Prodigy. Amanda's kid money work has been featured on Experian, GoBankingRates, PT Money, CA.gov, Rockstar Finance, the Houston Chronicle, and Colonial Life. Read more here.
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