How to teach teenagers about money
The teenage years can be difficult, and money matters can seem insignificant. But good money management is important for them to learnt financial independence as they get older.
Give them financial responsibility
It’s important that teenagers recognise the value of money and understand that it’s not an unlimited resource.
Giving them the freedom to manage their own budget will teach them two valuable lessons:
- Only spend what you can afford.
- Avoid the pitfalls of unplanned expenses.
Pocket money
Did you know?
Just over half of 15 to 17-year-olds who receive money on an ad-hoc basis keep track of their income and spending. Whereas almost two in three of those who receive a regular, fixed amount are aware of their financial incomings and outgoings.
How much pocket money you give isn’t important. Giving even the smallest amount of money regularly is a great way to help them learn how to manage money.
For many people, pocket money is their first taste of financial responsibility. Giving a teenager a regular, set amount of money and the responsibility of paying for something they want gives them the opportunity to practise good money management.
Even better, why not give them tasks to earn their pocket money to prepare them for their first job?
Case study
“We have a chores list the children can earn money from, and each chore has a price. We don’t make them do the chores, but if they want pocket money each week the amount they get depends on what they do around the house. It gets paid into their bank accounts and they can spend it on what they want.” – Sabrina
Ways to earn pocket money
Teenager could earn pocket money in many ways, such as:
- doing chores around the house
- mowing the lawn for you, friends, family, or neighbours
- looking after pets or taking neighbours’ pets for a walk
- cleaning cars
- a paper round
- babysitting
- selling items they no longer want on eBay, or helping you sell items on eBay and earning a commission
- doing odd jobs for people you trust.
Budgeting
One way to help teenagers take responsibility for their money is to talk to them about your financial responsibilities.
Talk to them about your income and what you need to budget for. This includes bills, shopping, and anything you spend on them, such as school lunches or trips.
With supervision, help them take over the budgeting for one week.
At the end of the week, have a discussion. Perhaps ask them:
- how did they feel about it?
- what did they find difficult?
- was it harder than they expected?
- what did they learn?
Case study
“I give Yazmin and Tariq a monthly allowance, which is a combination of both pocket money and money for clothes (including school uniform), plus social money for activities they want to do with friends. It has been necessary for them to learn to budget and allocate their money. Something like school uniform they obviously wouldn’t need to buy every month, but they still need to make sure they set some aside so they have enough to buy it when they need to. After a couple of weeks of stumbling, they are doing really well with organising their own money.” – Abda
Ways teenagers can budget
Here are some ideas to help them get in the budgeting habit:
- Help them find a free budgeting app – many of these apps make budgeting fun by tracking goals and progress. Gamification – using gaming elements for real-world tasks can work really well.
- Set up a savings challenge – it needs to be related to something they really want, and they’ll have to budget to succeed at the challenge.
- Give them three jars – when they get their weekly pocket money or allowance, help them divide their money into three categories: needs (for example lunch at school); wants (such as driving lessons); and a rainy day fund. (See ‘Consequences’ below for more about unexpected costs).
Consider what strategies will work best. Gamers will love the app approach, while a competitive teenager will more likely be up for a savings challenge.
Consequences
Teenagers who are responsible for paying unexpected expenses themselves (rather than asking their parents for the money) are much more likely to keep track of their money.
Part of teaching teenagers how to manage their finances comes down to setting boundaries with the money you give them and not bailing them out if they overspend.
It’s better to learn the hard way now, while the amounts are small, rather than later when overspending can lead to problem debt.
Case study
“When James got a Saturday job at a pet shop, he had to save some of his pay and the rest was for things like clothes and computer games. If he overspent, that was too bad; he would have to wait until the next payday. Savings were off limits unless it was an emergency”. – Sharon
Set the right example
When it comes to managing finances, many teenagers mimic their parents’ behaviour. Here are some tips for helping you set the right example.
Practise what you preach
If you’re the type of person who saves up to buy something, it’s more likely that teenagers who observe this will do the same.
However, if you’re quick to turn to credit to fund non-essential purchases, they’re likely to follow this example.
If there’s something you really want but can’t afford, such as a family holiday or a spa break with a friend, talk about this openly with them. Discuss:
- How much you need to save.
- What steps will you take to reach your savings goals?
- Will you need to cut back on other spending or try to earn more?
- Do they have any ideas to help you?
You could even sit down with our Budget Planner tool to work out a monthly budget.
Be honest
You don’t have to be a pro at money management to help a teenager be one.
Some people worry that their own poor money skills will be a bad influence. Don’t worry – just be honest with them.
Be open about some of the financial mistakes you’ve made – both as a teenager and as an adult. Talk about:
- what the impact was on you
- what the impact was on others
- what you learnt from the mistake.
Sharing these examples can be a good way to highlight the dangers of poor money management.
Help them manage their first wage
Getting a job can be a teenager’s first step towards true financial independence and can play an important part in preparing them for the future.
Case study
“When I was a teenager, I got a part-time job in a café and this taught me respect for money and that it doesn’t just come out of nowhere. When Sarah hit 14, I encouraged her to do the same and I have seen a definite change in her attitude to money.” – Graham
While many teenagers take on informal employment such as babysitting for family friends, anyone over the age of 13 can get a part-time job.
Getting a job brings with it a new level of financial understanding. And there are ways you can help them build this understanding.
Check the minimum age for working full- and part-time on the GOV.UK website.
Understanding payslips
Teenager will need to learn how to interpret their payslip and what different money terminology means.
Discuss their first few payslips with them, asking:
- What is their payroll number?
- What is their hourly rate and does this change with overtime?
- What is the difference between gross pay and net pay?
- What are the National Insurance and tax deductions?
Perhaps direct them to our page on Understanding your payslip, and ask if it raises any questions for them.
How to save money as a teenager
A job will increase the amount of cash available to teenagers. This is a great opportunity to talk about the importance of saving.
Saving can be as simple as deciding to put aside a certain amount each month for a rainy day. Or, if they’ve a set savings goal, helping them make sure they reach it.
For example, if they want to buy a car, you could show them how to set up a standing order to their savings account each payday. This will make saving automatic and easier for them to stick to their budget.
You could also direct them to our Car costs calculator, which will help them find out how much it costs to run a used car over a year.
If they find it hard to save, consider a free app that automatically transfers a set amount of money into a savings account.
Find out more in our guide on Savings accounts for children.opens in new window
How much should they save from their wages?
There’s no right or wrong amount they should be saving from their wages. It will be different for every teenager and their individual circumstances.
When helping them decide how much to save from their wages, consider the following:
- How much are their weekly (necessary) expenses?
- How much does their social life cost?
- Are they saving for anything in particular, such as a car or university?
- What is their ideal ‘rainy day’ fund?
- How much is their income?
The right savings amount for them will depend on answers to these questions. So it’s worth setting some time aside to discuss these with them.
Whatever the savings amount is, it’s a good idea to review it monthly or quarterly to make sure it’s working. Also, they may have received a pay rise or started to work more hours and need to change their savings plan.