How to Teach Teens to Budget Money Through Setting Limits
Many parents lecture or talk to teens about spending less money. But if parents are the ones doling out the money, teens will usually spend as much money as parents will provide. Parents can do a better job of teaching teenagers to budget money by setting limits on the amount of money they give to teens.
Providing an allowance for teens on separate expenses such as lunch money, spending money, gas money and clothes provides opportunities for teens to make decisions on how to budget the money available. The parenting strategies below include giving teens a prepaid debit card, paying for school lunch with checks and teaching teenagers the envelope system. Used in various ways, these ideas will help parents when setting limits on spending and in sticking to an agreed upon allowance for teens.
Lunch Money Allowance for Teens
In the new millennium, school lunch for teens offers more options for spending than when today’s parents were teenagers. Teens can have fast food options and buy sports drinks, chips, desserts and more as add-ons to school lunch, racking up a higher cost for lunch money than buying only a “regular lunch”.
For setting limits on lunch money spent by teens, parents can decide on a set budget, money given to teens on a weekly or monthly basis. Most school websites provide information on the price of a regular lunch. Parents can decide how much more lunch money, if any they are willing to give to teens for extras or for optional lunches. Then teens get to make decisions about which extras to get and when. Giving teens a check made out to the school ensures that the money can only be deposited to the school lunchroom and not spent elsewhere.
Envelope System Allowance for Teens
When setting limits on spending for anything – a clothing limit, a monthly spending allowance or expenses on an overnight field trip, parents can teach teens to use the envelope system to budget money. The envelope system uses paper envelopes to store money and each envelope can be designated for a different spending category.
For example, parents can give a teenager an allowance of $50 per month with the agreement that $25 is for gas and $25 is for entertainment for the month. Parents can tell teens that it may be helpful to write the words “gas” on one envelope and “entertainment” on the other so that teens can pull money from the “gas” envelope to purchase gas and spend money from the “entertainment” envelope for going to the movies, buying milkshakes, etc.
Prepaid Debit Card for Gas Allowance
Busy parents may not even realize how much money they give teens for gas on a monthly basis. Before deciding on a gas allowance for teens, parents may want to track the amount of money they currently give a teenager for buying gas.
After deciding on a realistic gas budget, parents can load a prepaid debit card with a certain amount of money each month. Parents can give the card to their child and let a teen know that the card is only to be used for purchasing gas. Parents can also monitor purchases by asking teens to save receipts for gas.
When using parenting strategies such as a prepaid debit card or an envelope system, the key is to say “no” if and when teens run out of money near the end of the month. Teens will not learn to make decisions about money if parents simply supply more money when teens make mistakes.
Parenting Strategies Need to Let Teens Make Decisions
Teaching teenagers to manage money isn’t about telling, but about letting teens practice the skills to budget money on a daily or weekly basis. It’s hard for teens to learn about budgeting if they never have to weigh options and make decisions on how to spend money. Using a prepaid debit card, writing a lunch money check directly to the school and using the envelope system are parenting strategies that allow teens to practice real life budgeting skills.
Three keys to setting limits and teaching teenagers about money using any of the parenting strategies suggested above are expecting teens to make mistakes and run out of money; not rescuing teens and not giving them extra money; as well as letting them figure out how to make it until money is given out the next week or month.
Should Teens Have Credit Cards
According to toponlinecasino.com.ph, college seniors averaged over $4000 in credit card debt in 2008. Many young adults don’t learn how to be financially responsible and find themselves with large amounts of credit card debt when they’re graduating from college. If parents teach their children the value of money and how to use credit cards, they have a better chance of becoming financially responsible adults.
Helping Teens Build a Credit History
It’s dangerous to give teens credit cards without teaching them how and when to use them, but it can also be detrimental to graduate from college without a credit history. To have a good credit score, a person must have a credit history. If someone has never had a credit card, it will make it harder to rent an apartment, buy a car and anything else that requires a credit check. However, parents should not cosign a credit card with their teens without preparation.
Preparing a Teen for a Credit Card
The first step in teaching teens financial responsibility is to set them up with a checking account with a specific budget. For example, a parent may set a clothing and eating out monthly limit of $150, so that parent could open a checking account for his teen with that amount of money. The parent should teach the teen how to balance a checkbook and consistently check in regarding the amount of money left in the account and to see if the teen is keeping track of the money.
The next step in teaching teens about money is giving them a debit card to correspond with their checking account and teaching them how to use it. If the teen has a job, the money she earns should be put into the checking account, not the parent’s money. To really teach teenagers the value of money, they should be responsible for making money to fund fun spending such as video games, going to the movies with friends and new designer boots. Once a teen has mastered her checking account and debit card and used them responsibly, the parent should consider discussing credit card options.
Credit Card Options for Teens
Parents can cosign a credit card with their teen, so they are able to keep track of the teen’s purchases. However, this does make the parents liable for the teen’s spending and debt, which can affect the parents’ credit score if the credit card is not used responsibly. This is a risk that parents take when they open a credit card account with their teens. To reduce this risk parents should restrict the spending limit on the card to a low amount such as $200. That way, parents can make sure that the credit card gets paid on time each month.
Before cosigning a credit card with a teen, parents should discuss the proper uses for debit cards versus credit cards. Instill in teens that credit cards should never be used to buy clothes, dinner out with friends, coffee at Starbucks or any other unnecessary purchases. This is what a debit card and checking account are for. Let the teen know when he should use the credit card such as if the car breaks down and he needs to get it towed. Use it for emergencies or only when he knows that he can pay the balance that month.
Parents should let their teens know that they don’t have to use their credit cards to build credit history; they just need to have one. Teens should get credit cards to build their credit history after proving they are financially responsible with a checking account and debit card and after discussions around the use of credit cards.