By the time they reach 14 or 15, kids are capable of handling more financial responsibility, but are rarely given the opportunity to do so. Teens have more expenses as they get older, but most of them don't have a clue how to budget their money when they start earning a paycheck.
The 3-category kids-money-management system is no longer enough.
Whether your teen is earning money via a paycheck or still receiving an allowance, they must be required to be much more responsible for their own finances. To think they'll pick it up on their own once they leave the nest is completely foolhardy! Don't turn them loose to flounder on their own. Teach them how to flourish before they leave high school.
Your teen should be expected to be responsible for more of his own expenses. Consequently, his allowance should reflect a corresponding increase in order to cover those expenses. Remember, you are not doling out more money than before, but rather, you're giving it to your teen to pay for the things you have been paying for up to this point. But you'll do it in a way that your teen learns how to budget effectively and is prepared for the unexpected as well.
The Allowance-To-Age Ratio We Use: After combing through our own budget, we were able to determine roughly how much of our family budget was spent on our teenage daughter (I had to deduce this because our clothing budget is all lumped together). When I added up how much we spend on her in these areas in a year, I was able to come up with a figure for a monthly allowance.
We take her age times $100 as her allowance for the year, and divide that by twelve to get her monthly allowance. (I like to break things down into easy formulas.) Rounding this number off gave us a dollar figure comparable to the expense/allowance figure I'd already come up with. We decided on a monthly allowance, partly because it's easier for me, but also because we want her to know what it's like to wait for the next "paycheck", so to speak, and to plan expenses accordingly.
Your situation may be different. Perhaps your teen has a part-time job, or has more expenses to cover, such as a cellphone bill or auto maintenance. You'll have to determine this with your own family for your own circumstances. But hopefully, our experience will help get you started in the right direction.
My recommended Rules Of Thumb in determining
an appropriate allowance for your teen:
You might choke when you see a rather large number, but remember, it's not MORE money than before, it's just redistributed in a different way. Before, you paid for her clothes, shoes, lunches, supplies, etc. Now you're giving that money to her to budget out over the year, and make the purchases herself.
By now you should have a pretty good idea what kinds of expenses your teen will become responsible for. List these out, along with a monthly budgeted figure. For instance, if you typically spend between $200 and $250 per year on clothes for your teenager, establish a monthly budget of about $20 per month. He won't spend $20/month on clothes, but he must set aside that much so that when it comes time to purchase new clothes, he'll have enough in his clothing budget to cover it.
Here are some budget categories you might consider:
Clothes and shoes
Fuel or bus pass
Hobby or Sports expenses
Start with these basics, and build on it as your teen gets older, including things such as auto insurance and an emergency fund.
If your teen is good at following a ledger and balancing it regularly, budgeting on paper is great. But odds are, your teen isn't ready for that just yet, so start the budgeting with a more hands-on approach.
Here's what I recommend to help with
their first crack at responsible teen money management:
Purchase a coupon wallet at an office supply store. You can get a simple plastic one for about $3 that will do the trick, or you might like to get a stylish-looking one for around $8. In a pinch, a three-ring binder with hole-punched ziploc bags will work too. The coupon wallet won't hold coin well, but those can stay in their regular wallet/pocket anyway.
Label each compartment of the coupon wallet with the names of the categories: Savings, Giving, Clothes & Shoes, etc.
Write the budget categories and monthly or bi-monthly amounts on an index card and put it in the front of the wallet for easy reference.
When allowance/paycheck time comes along, your teenager will put the allotted amounts into each category section, and pay out of them accordingly.
Periodically check up on how your teen is coming along with her budget categories.
There will be times when an expense comes up but there's not enough in its category to cover it. A choice must be made: 1) wait until he has enough in the category, or 2) borrow from other categories and deplete his resources. Sometimes, the latter option can't be avoided. But that's good, because it's all part of the money-management training. They must learn that sacrifices will be made along the way in order to truly make it work. And they'll learn through experience that waiting is almost always the better option.
Knowing what's expected, seeing what's available, and being encouraged along the way, your teen will quickly learn how to handle money. You'll know it's working if your teenager decides to forego spending money on junkfood or entertainment in order to save enough for a special purchase. You'll see the wheels turning when faced with financial decisions, weighing options rather than just rushing headlong into spending decisions. You'll hear him giving his friends money advice, and feeling proud to have a plan for his own finances. And you'll know he is on the right track when he no longer comes to you for money!
And remember, one of the best ways to teach good money management skills to your teenager is to be a good money manager yourself. Talk about what works and what doesn't. Admit when you blew it, and share how you plan to fix your mistakes. Show an attitude of generosity toward others. Be the good example your teen needs, so that she won't end up floundering like her peers once she goes out into the world.
Then your teen will flourish as a faithful steward!
Do you have another idea about teaching teens financial responsibility? What method did you use for allowances? Did it work? Please share your story!