Financial Advice: How to Make a Budget for Your Teen

The recession is contributing to a change in the spending and savings habits of many Americans. ABC News cites the U.S. government when it points out that the savings rate rose to 2.9 percent in the last months of 2008. Adults are getting the message that focusing on savings and a budget may be the way to go, but are teenagers?

Teens Need Help When Learning to Budget

In its last biennial survey, the Jump$tart Coalition found that high school students are uninformed on matters of financial literacy -- and that their use of plastic (credit and debit cards) is on the rise. Because most teenagers learn financial habits at home, parents can play a big role in helping the next generation make wiser financial choices. The first step is to create a budget and teach teenagers the importance of sticking to their spending priorities.

Helping Your Teenager Make a Budget

Your teenager can learn about setting priorities, accumulating savings and following a budget by going through the process with you. Follow these steps to help your teenager create a budget that he or she can live with:

1. Itemize your teen's expenses. Have your teenager think about what he or she has spent in the last month. Use receipts and memory to discover these costs. If this proves difficult, have your teenager keep track of spending for the coming month, either by hand or with help from personal finance software. An accurate accounting of expenses is necessary to a realistic budget.

2. List your teenager's income. Consider income from a part-time job, odd jobs, allowance or other earnings. It might help to consider yearly income -- which includes birthday money from relatives -- and divide that number by 12 to figure out a monthly average.

3. Consider savings. Point out the importance of having savings. You can even open a retirement account with your teenager and have him or her start saving. There are online budget and planning calculators that can help your teenager visualize the benefits realized by saving at an early age.

4. Have your teenager set some short-term spending goals. Talk about planning ahead. If your teen wants to attend a concert or a special camp, help him or her figure out how much money needs to be set aside in the budget to meet those short-term spending goals.

5. Ask your teenager to prioritize his or her expenses. This is important. Encourage your teen to put long-term savings and funding for short-term spending goals at the top of the list (you know, the "pay yourself first" philosophy). Then have him or her list out the rest of the expenses, in order of preference. If your teen runs out of money before he or she runs out of list items, the least important things are cut.

Making sure that teenagers can pay for what is most important to them is one way to increase the likelihood that they will be able to adhere to the new budget. Also, realize that your teen will watch what you do with your budget. It may be necessary to reform your own budget practices in order to set a good example for your teen. In fact, doing this together can provide support for both of you.

Sources:
http://abcnews.go.com/Business/wireStory?id=6785174
http://www.jumpstart.org
http://www.smartmoney.com/spending/deals/Raising-Financially-Savvy-Kids-17296/