How to Teach Your Teen About Money and Budgeting

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Going to university is a milestone for many young people, and while for some this means realising ‘adult responsibilities’ such as doing their own washing and paying bills, others lack the knowledge and experience to manage these duties sensibly…or at all.

In a recent survey of 1,000 parents by student bill-sharing website Split The Bills, only one in five [20.4%] said they teach their teenagers how to manage a budget. And only 6% say they ensure they keep track of their teenagers’ outgoings.

Without sufficient experience of handling finances, many new students struggle to control their outgoings. On top of growing debts and difficulty paying rent and bills, research has consistently linked money woes to stress and mental health issues suffered by students during their degrees.

Students also underestimate how much they spend on non-essential items per month. Previous studies have found that, while students think they spend around £112 on non-essential monthly payments, they actually spend double that—an average £220 every month.

Ashley Tate, chief executive officer at Split The Bills, said: “Students have a bit of a reputation for being irresponsible with their finances, as many choose to spend their money on materialistic items or on socialising, without thinking of the consequences.

“This often gets them into a tricky predicament where they don’t have enough money to buy food, or even pay their bills. This usually happens because they don’t know how to live within their means, which is a skill that can be taught from a young age.”

To support young people considering university study, parents can teach their children how to keep on top of their personal finances from a young age, and avoid falling into reckless spending habits during their degrees. Here’s how…

Pocket Money and Savings

Only a fifth of parents [20.3%] in the Split The Bills survey said they give their teenagers pocket money in exchange for doing chores.

If you don’t do this, it might be wise to start as it can reinforce the importance of earning money and encourage them to spend their resources responsibly from an early age.

“Pocket money is a great way to introduce the idea of budgeting and being responsible for money,” Ashley said. “If the child receives the allowance based on chores they complete or grades they achieve, this teaches them the value of hard work.”

This can also inspire them to save and put funds aside for future use or investments, such as covering the cost of living at university or travelling. One way to achieve this is supplying teenagers with a piggy bank, something that only 8.3% of parents surveyed in the Split The Bills study said they do.

Simonne Gnessen, founder of Wise Monkey Financial Coaching and co-author of the book Sheconomics, said: “Piggy banks are often thought of as a way to save spending money but there are some you can buy or even make yourself that have different compartments which categorise whether the money is to spend, save, gift or invest. This shows a young person how to plan ahead.”

If the idea of a physical piggybank seems a little old-fashioned, then setting your child up with their own bank account and putting their allowance in there is a good idea. You can even set them up with their own Junior ISA for their savings.

Teaching them about banking, the different types of accounts, and the idea of credit from an early age will help them know what to do when it comes to opening student accounts and applying for student loans.

Good Habits and Honest Discussions

Keeping track of outgoings can be tricky even into adulthood, but for young people with little or no knowledge of financial management, it can seem futile and impossible. Talking about money can be confusing and stressful, so placing these lessons in the context of the family’s own finances might be more beneficial to the teen’s understanding of calculating budgets based on income and expenses.

“Parents should avoid talking about money in a sense of ‘no, we can’t have that’, ‘we can’t afford that’, or ‘we don’t have the money’, because then you’re instilling a lack of a positive mindset surrounding money,” Simonne said. “Use everyday opportunities to just talk about choices, and instead say ‘this isn’t how we’re choosing to spend our money’. 

Where possible, give the young person opportunities to experience these decisions. “For example, if they demand popcorn and expensive drinks at the cinema, give them a budget for treats and a choice of either shopping at a supermarket and getting more for their money or using it at the cinema and getting less.”

Such an approach advocates ‘considered spending decisions’ instead of impulse buying, and shows teenagers ways of monitoring their outgoings, such as making a list of all the payments they make, suggests Ashley: “That way, they can identify what they have left spare and whether they can cut any payments down.”

Breaking down your own financial payments into fixed monthly costs and occasional costs, as well as essential and non-essential, presents financial information in a more digestible way and helps teenagers identify payments to prioritise, such as bills and rent, over extras and luxuries like eating out and new clothes.

Setting a good example for teenagers and explaining the realities of managing money equips them with a solid set of life skills that will serve them through university and beyond.