Probably one of the most challenging topics to discuss with your teenagers is money matters. Some parents believe it’s just a matter of showing them the importance of budgeting to teach them how to budget and save money effectively.
The earlier you give financial literacy to your kids, the more knowledgeable they will be in handling money. It is a must for every teenager to learn how to budget and manage money wisely regardless of whether their parents gave it or they have earned it.
Many teenagers are excited to become college students. For them, it's the freedom they are looking forward to in the future. When they handle their finances like deciding on getting loans, what to buy, and what not to buy, pay bills, and budget money to last until their next payday and others. If you failed to teach them, they might have a hard time dealing with it. Parents should make kids aware of personal finance and how to achieve financial freedom for a better future.
You can talk about financial topics in your daily conversations. Set some examples of how it will affect their future. Start with your experiences. Tell them your story on how you learnt to budget and started saving money. Open their eyes to the reality when it comes to money at the early stage.
6 useful ways to teach your kids budgeting
1. the difference between needs and wants
when teaching your teenagers to make a budget and manage their money, you need to teach about their wants and needs. tell them that "needs" are necessary to live, like food, clothes, and shelter. And the other things you desire are the "wants." Show them your budget as an example so they will have an idea that wants should be the least priority in terms of spending.
many times teenagers who were raised by wealthy parents usually cannot distinguish which to prioritize to buy. But once they become independent and start earning, they become budget-conscious. Teaching them about wants and needs before they live on their own will help them become responsible for budgeting their money.
suggested read: How Do Rich People Teach Their Kids About Money?
2. teach them the basics
teach them the difference between the actual and expected expenses, short and long-term expenses, and savings for long-term financial goals. They should know the basics of the post and pre-tax income as well as the basics of interest. If they are interested in investments, you can introduce the basics of the stock market.
Opening a bank account for them while they are still young is a good idea. Make sure that you are listed as their guardian so you can keep track of their spending transactions, fees, possible overdrafts, and other issues. you can also open an akudo account for your kids to save money and overview their expenses
Teach them how to balance a chequebook, how to keep track of their spending using the bank's app or portal, and using a debit card. You can show them your's as an example.
If you find your teenager good at managing his money, you can open a low-limit credit card for him. Teach him how to use it responsibly and pay the balance every month.
3. teach them how to manage their money effectively.
some kids do not divulge their monthly earnings. They keep it a secret even to their parents. Anyway, you are not after their money. It is important they should learn to manage their money wisely. The amount of money they have on hand may not be that big but do not just let them spend it.
help them to budget their money for the first few months. After that, you let them do it on their own. The vital categories they need to focus on include clothing, savings, leisure, and others.
If your teen learns to divide their money into different categories without asking you for additional allowance or borrowing money, it means that your kids are managing their money well. You can let them use some apps to help them in managing their money.
4. involve them in creating a budget for the family
let them join you when discussing the family budget. Do not expect them to understand everything instantly. Involving them when budgeting for the family can help them practice their skills in managing the money. Sit down with your kids and let them participate while making your monthly budgeting meeting.
Include in the discussion how much money comes in, the bills you need to pay, and other expenses such as education and medicines. Take note of the extra money you have for clothing, dining out and others.
Through this, your kids will see that every dollar in your budget is noted. They will also have an idea that if they spend in excess of what they can afford for a month can result in debts. This is the best way of presenting to them the result of having a bad financial habit.
Tell them your stories on how you plead to your parents to increase your allowance so you can pay all your dues for the month.
5. teach them how to delay gratification
One of the hardest things for teenagers to do when it comes to budgeting is to make them wait to purchase what they want. Not only teenagers but also adults may tend to buy impulsively. Parents should teach their teens to practice delayed gratification. This means that they should focus on buying what they need and delay purchasing what they want.
For example, a famous company of gadgets releases its latest model. Just because your kid’s classmates have them, you won’t also get it for your kids. Explain to them that they have to wait until they have enough money in excess to buy it. Since the gadget falls on want, let them share their money to purchase it.
suggested read: What to do if your child asks for something expensive?
6. teach them the consequences of debt
You might wonder why we have to include debt when teaching the kids to budget their money. This is to instil in them the importance of budgeting their money and saving some for their future needs as getting a loan is not a good idea. Even if your parents pay for your college education, things may change. Cite some examples of how getting into debt is not a good idea, and as much as possible, your kids should know this.
Sometimes, it is okay for your kids to make mistakes to show them that there will be consequences in every wrong decision they make. If they go over budget for one month, they need to understand that borrowing money is not the solution. The best thing to do is to cut back on their budget for the succeeding month. If their source of money is their allowance, do not increase their monthly allocation to pay their debt from the previous month. Let them learn to cut on their expenses in the incoming month to pay their debt.
Teaching your kids how to budget their money is not easy. Setting a good example to them can help them in understanding the significance of budgeting. Your experiences can enlighten them on reality. The above tips can help you teach your kids to become mature in dealing with money. If you think they are not yet ready to deal with money matters on their own do not force them. Be patient and eventually they will learn it.