Teach Your Teen How to Make Smart Spending Decisions
When teaching your middle schooler the basics of personal finance, one key component is helping them understand how to spend money wisely as a teenager. It’s one of the life skills for teens that falls under money management.
Most families tell their kids that saving is important, and it is, but without also mastering the ability to spend wisely, teens will never reach their financial goals, regardless of how much money they make.
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Keeping Track of Spending
To be successful financially, teens need to learn how to budget their income and expenses (money they earn and money they spend). But before sitting down to fill out a budgeting spreadsheet, it’s important to have a general idea of where you are spending your money. So, over the next couple of weeks, encourage your teen to track her spending, whether she is using her money or yours. The goal is to get a picture of the money being spent on her and by her.
Lunch at Chick-Fil-A? Write it down. A drink while at a roller skating event? Write it down. A birthday gift for a friend? Write it down.
Chances are your teen will be surprised where she is spending money and how quickly small trips to places like Starbucks add up. That’s why she should write down every penny she spends, regardless of how insignificant it seems. Keep it simple by using a notebook you already own or buy a small one from the Dollar Store (which counts as an expense by the way). After a couple of weeks, sit down with your teen and review her list to get a clear picture of how she is spending money.
What if your teen doesn’t have a regular part-time job? Should she still do this exercise? Yes, keeping track of what she spends teaches her the first step in taking control of her finances, even if all she is spending is birthday money or allowance. Teens who practice how to live within their means with a small amount will make smarter choices as they earn more money.
It’s not about what we earn, it’s all about how we spend what we’ve earned! – Stephen Magnus
This is the perfect time for a lesson on wants versus needs. Very few of us make enough money to spend our money on anything and everything. As adults, we make choices based on the money we have. Often, by giving our kids money whenever they ask for it, even for small items like a candy bar or an outing with friends, we inadvertently teach them that they can do whatever they want, regardless of money. This is not how the real world works and teens are old enough to learn and apply this concept to their own lives.
I’m not saying that you should never give kids money to go out with their friends. What I am saying is that it shouldn’t happen all the time. If your son wants to go play Laser Tag with his friends every Friday night, he should find a way to pay for some of those nights. If you want to, you could cover some or he could stay home and find something free to do with his buddies. It’s all about choices. And if you’re handing your teen money whenever he asks for it, you’re robbing him of the chance to develop this incredibly important skill.
Ways We’re Teaching Our Daughters How to Spend
Here are some examples of how we are helping our teens practice how to spend wisely.
- Whenever they receive any money, whether earned or given as a gift, they immediately set aside at least 10% for long term saving goals, 10% to give away to a charity of their choice, and bank the rest for things they’re required to pay for and to use as fun money.
- While we don’t have them pay for movie tickets when we go to the theater as a family, they do pay their own way when they go with a group of friends.
- Although we pay for our kids’ cell phones, if they break them, they must pay the insurance fee to get a new phone. Our youngest has broken hers twice in the past year. Both times, she used money she had set aside for spending so she could still have a phone. If she didn’t have the money in her spending account, she would have to live without a one until she could earn enough money to cover the replacement fee.
- When our daughters get a group of friends together to go roller skating, they pay for it out of their own spending money, along with any snacks that they want while they’re there.
- While on vacation, we will purchase one souvenir for each of them. If they see something else that catches their eye, they need to use money that they’ve budgeted for vacations.
- They either make gifts for their friends’ birthdays or pay for a gift with their own money. They’ve gotten very good and finding beautiful, yet inexpensive items while on vacation that they buy and hold until the birthday comes.
After your kids have a handle on how they’re spending their money, they can start learning how to budget by figuring out how much is needed to cover expenses, to save, and to give to charity. Teach them that part of spending smartly is by not spending everything. The money that isn’t accounted for is what they have left to spend.
These money management skills need to be practiced, so give your teens every opportunity to manage their money and make their own financial decisions. Let them chose how to spend the money they’ve set aside for spending. Give them the power to make the tough decisions and to wrestle with having to set aside their wants in order to fulfill their needs. By learning how to do this right now, with a little bit of money (and your support), it will become a habit for them.
Trust me, you want your teen to understand the concept of delayed gratification now. The last thing you want is your adult child spending every cent of his or her paycheck on movies, video games and pizza, instead of following a solid financial plan.
Practice Smart Spending Scenarios
While working on your teen’s personal spending habits, walk through these scenarios to practice thinking differently.
They’re excellent real life math projects for middle school.
- You’ve received a $50 check from Grandma for your birthday. You’ve been invited to your friend’s birthday party this month and there’s a new video game out that you’ve been waiting for. How will you spend your $50?
- A friend has asked you to go to see a movie. You have $20 in your spending account. Do you go? Are there choices you can make to spend smarter (think matinee, sharing snacks, etc.)?
- You want a bracelet that costs $10, but you only have $15 left after paying for your expenses this month. What do you do?
As I said, this is a skill that takes a lot of practice to master. In fact, based on the number of families who are in debt, few adults have learned how to make smart spending decisions or delay gratification. It’s why it is critical that we teach our children how to tell the difference between wants versus needs, the principles of spending wisely and the importance of living within their means.
Important Personal Finance Fundamentals Teens Need to Know
My husband and I have put together some other things that we are doing in our family to make sure our girls become financially literate – personal finance fundamentals.
- 2 Fun Board Games that Will Teach Teens About Money Management
- 50 Fantastic Ways for Teens to Make Money
- Teach Your Teen How to Be a Powerful Saver Now
- Teaching Teens How to Budget and Why It’s an Important Skill
Other Money Management Skills for Teens
- Teaching Kids Life Skills: Money Management
- Teaching Teens About Money
- Fun Money Management Activities for Teens
Additional Personal Finance Resources
- Cash envelopes to help kids budget money
- Make Your Kid A Money Genius (Even If You’re Not): A Parents’ Guide for Kids 3 to 23
- Not Your Parents’ Money Book: Making, Saving, and Spending Your Own Money
- The Kids’ Money Book: Earning, Saving, Spending, Investing, Donating
How are you teaching your kids about money management?
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