When teens get all their money from parents, they may not understand the balance of income and expenses that goes into a budget. However, as they get older, they have to make spending and saving decisions. An early start on that part of their education can prevent many financial problems in their young adulthood and beyond.
Parents may complain when their teens ask for cash, "Money doesn't grow on trees." Actually, teens may not realize where money comes from. In their world, you ask Mom or Dad for money, and you get it. Teens can learn the value of counting income either through an allowance or a part-time job. By limiting how much money they have coming in each month, you can teach them that financial resources are not unlimited. This important lesson will apply the rest of their lives, whether they are working a job or running a business. What you have coming in is all you get.
Most teen spending is discretionary. That is, they only spend money on things they want, not on things they need. You don't have to make them pay for their own food to teach them how to monitor spending. Have them list all the things they want to spend money on for the week or the month. Include entertainment, snacks and even luxury items such as a case for a smart phone.
Teens tend to think of savings as money they don't get to spend. The idea of needing money in the future seems foreign to them, because you've taken care of all their financial needs. Their view may be, "If I need money next year, I'll ask my parents for it." You can counter this tendency by asking the teen to identify some large purchase she would want to make in the future. Good candidates for this include video game consoles, sneakers or a special jacket or dress. Then show your teen how to save a little money each week until there's enough money for the purchase. This teaches the opposite of instant gratification. Teens who know how long it takes to save money to buy something they want appreciate the value of large sums of money.
Your teen can write down all expected income, expenses and savings and see how money has to be portioned out in a budget. Adult budgets are certainly more complex, but this beginning budget helps a teen grasp the basics of managing money. It's a lesson that will last a lifetime no matter how complex the income, expenditures and investments become.
Kevin Johnston writes for Ameriprise Financial, the Rutgers University MBA Program and Evan Carmichael. He has written about business, marketing, finance, sales and investing for publications such as "The New York Daily News," "Business Age" and "Nation's Business." He is an instructional designer with credits for companies such as ADP, Standard and Poor's and Bank of America.