The teenage years can be difficult, and money matters can seem insignificant. But good money management is important for them to learn 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

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?

Ways to earn pocket money

Teenagers can 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?

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) might 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.

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. But 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?

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. 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.

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?

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 can 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.

If they find it hard to save, consider a free app that automatically transfers a set amount of money into a savings account.

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. 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 might have had a pay rise or started to work more hours and need to change their savings plan.