Your teenager is pulling down a paycheck this summer and the money is rolling in — and out for gasoline, car insurance, fast food and maybe the cell phone bill. What to do?
Try the vaunted b-word ... as in budgeting.
While budgeting is hard for many parents, it might actually be easier for teens. There are fewer spending categories to monitor and smaller sums of money to account for from a summer job, allowances and other sources.
Still, surveys show that relatively few kids monitor their spending and stick to a budget. That’s not surprising, given their age, and I suspect many are probably modeling the behavior of their parents.
But with a little bit of adult supervision, kids can learn some valuable lessons on how to gain control over their spending impulses.
For starters, don’t use the b-word, said Kansas City financial planner Barbara McMahon of Innovest Financial Partners.
She dislikes the “negative connotations” to budgeting. It’s like telling a 16-year-old to eat his Brussels sprouts and spinach because they’re good for him. Instead, McMahon suggests focusing on a “spending plan.”
Here are some suggestions on how to start one.
—Record expenses. Keep a journal for one or two months of everything you buy, down to the penny. That means tracking not only gas in the tank but also the iced coffees and vending machine chips. Everything.
At the same time, record in a separate column the amount of money you’re bringing in from a paycheck (after taxes and other payroll deductions, of course), an allowance, birthday gift money and such.
Once you have numbers to work with, McMahon recommends sorting the information into at least three main categories — required expenses, discretionary expenses and future expenses. Car insurance or gas could fall into required expenses, which take top priority. McMahon said she’s worked with some teens who’ve told her that tithing to their church is a required expense and they budgeted accordingly.
Additional categories could cover giving to charity and socking money into a savings or investment account.
—Decide what’s important. Do you really need the polo shirt, the fitted baseball cap or the video game? Or are those wants?
—Set goals. Kids need something concrete to work toward. Whether it’s a car, college or soccer shoes, teens will be more motivated to watch their pennies if there’s a reward at the end of the process. Remind your kids that saving for a rainy day is alive and well.
—Be flexible. Allowing some discretionary spending — even an occasional $5 latte — can do wonders for a teen’s frame of mind, said McMahon. Just account for the luxury in the budget, so it doesn’t become a “budget leak,” she said.
—Be creative. Especially for teens living at home, never overlook the barter system, said McMahon. For example, trade lawn work or preparing a family dinner for gas money.
Thanks to the proliferation of budgeting websites and smartphone apps, such as Mint.com and BudgetTracker.com, it is much easier now for kids to track where their money goes.
Whatever the approach, the bottom line is the same: When expenses increase, either make more money or spend less.
While it may seem nightmarish at times, letting your teens manage their money is all part of learning good financial behavior. And the big payoff may come down the road.