Teaching Teens About Budgeting & Debt

Help your teen build lifelong financial confidence with these practical tips on budgeting, saving, and responsible money management from The Police Credit Union.

• Teach budgeting basics through simple, real-life examples.
• Encourage smart spending by distinguishing wants vs. needs.
• Introduce hands-on budgeting methods to build financial independence.

As a parent or guardian, you want to see your child grow into a successful adult, not just in terms of personal responsibility but also financial independence. Before they leave home, it’s crucial they develop strong financial and budgeting skills. Here are four tips from The Police Credit Union to help teach your teen about budgeting and managing debt.

1. Keep It Simple 

Understanding budgeting can be overwhelming, especially for teens. It’s essential to break things down into simple concepts so they don’t get lost. Start by explaining the basics:

What’s a budget? Why is it important? How does it affect their daily life?

Once they understand the basics, introduce them to creating a monthly spending plan. This involves understanding their income, the types of expenses they can expect on their own, and how to allocate it effectively.

2. Understanding the Power of Money 

If your teen isn’t old enough for a job but you still want them to learn money management, consider giving them a regular allowance. This can help them get used to managing money and making it stretch for things they want. When they earn their own income, they’ll better understand how budgeting works in practice.

3. Difference Between Wants and Needs

A key concept for your teen to grasp is the difference between needs and wants. Keep it simple:

• Needs are essentials like food, rent/mortgage, a cell phone and utilities.
• Wants are non-essential items, such as upgrading to the latest phone or trendy clothing.

For each expense, list them out and their priority. Is this something you can live without? This can help sort through wants and needs.

Teens can get wrapped up with the latest trend or other big event, or keeping up with their peers, which can easily lead to overspending. Encourage them to think critically about their spending habits, especially when they’re out with friends. These are the top ways American teens spend their money according to self.inc:

• Food delivery and eating out
• Clothes, accessories, and personal care
• Toys, games, and technology
• Going out and entertainment
• Online services (Spotify, Netflix, etc)

The ultimate goal is for your teen to balance meeting their basic needs and saving money, while still having fun! Opening a teen checking account or providing a prepaid debit card can give them hands-on experience while allowing them to enjoy some financial freedom.

4. Create a Budget

Once your teen understands income and expenses, they can start tracking their spending. Encourage them to track their income, expenses, and remaining funds each month. Once they understand where their money is going, you can introduce different budgeting methods.

• 50/30/20 Rule: A popular method is the 50/30/20 Rule, where 50% of income goes toward needs, 30% toward wants, and 20% toward savings. While this method is effective, unfortunately not everyone can put aside 20% of their monthly income toward savings – especially for teens just starting to manage their finances. That’s okay! The 50/30/20 Rule is just one option.
• Zero-Budgeting Rule: Teens can also try the Zero-Budgeting method, where all income will be planned out to where it will go. You would start with your total income, any bills or expenses, savings, and you would adjust your budget “zeros out” at the end of the month. Pay Yourself First Method: If tracking everything feels like too much, the Pay-Yourself-First method is a great mix of both. With this, all they would do is set aside an automatic amount for their savings or expenses. It helps teens prioritize their financial future.

The Bottom Line

Teaching your teen about budgeting is one of the most important steps in preparing them for financial independence when they are an adult. By introducing these concepts early and revisiting them regularly, you’re not just helping them manage money - you’re giving them the tools to make informed financial decisions for the rest of their lives. With a strong understanding of budgeting, saving, and prioritizing their expenses, your teen will be well-equipped to navigate adulthood with confidence and financial stability. Investing time in these lessons now can set them up for a successful, stress-free financial future!