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Money and Budgeting for Teens

Saturday, 04 February 2012 08:55

Wish you knew what you know now about money when you were a teen?

I sure as hell do.

I suppose that having that knowledge might not have helped with my lack of self control or my lack of ability to curb my need to satisfy my thirst for cloths and all sorts of pretty things as a young woman. That took years to understand how to control and sometimes reels it’s head to ruin the best of my budget.

What have I learned about money?

Along the way I have learned that money is not the evil entity in this equation I once thought it was. It is my choice how to use or not use my money that can be the evil portion of the equation. Money is simply a necessity. To acquire it and work for it is a necessity. To pursue it does not make a person evil or bad – it makes that person smart and resourceful, industrious and honorable.

Teens, as you start to earn your own money it will be hard and confusing, but stick with it. Learn about money. Don’t be afraid of it or try to be ‘dumb’ to it. Money is how you move yourself to the things that you want to accomplish in your life and in the lives of other people.

Once you have started earning enough money to provide for yourself and your family you can begin to give back to your community. Imagine being able to that!

A must read for people of all ages who have a misgiving about money being the root of all evil, Secrets of the Millionaire Mind by T. Harv Eker. Silly name for a book that reaches pretty deeply inside to try and understand why we think the way we do about money. So don’t be shy about the title and additionally do be sheepish about the cover. It is equally as silly. This book changed my life and how I will forever think about money.

My wish for you as you read this is blog post to impart you with an excitement about money so that you will go out and learn all you can about money. I am by no means an expert. I am a lady who had to figurer out how to live on eight bucks an hour as a single mom of my infant daughter. It was very difficutlt, but it can be done.

Ages of Money

Zero to two years of age “money” can be exchanged with your child in the form of stickers. If your child does his or her asked tasks s/he gets a sticker. It’s the basic action and reward structure. In our house we even had a little chart where my daughter could put her stickers.

Two to six years of age is the transition from stickers to real money. Children often get money as birthday gifts and have opportunity to spend money in different ways. In this transition, stickers equal money. Using a chart system to reward your child with points/stickers that get totaled up. During the week your child can purchase items from the prize box using his points or save his points to purchase something bigger at the end of the week once all his points have been earned.

This is the beginning of saving and spending.

The prize box can have candy, or little toys, or books something that he is excited about. The larger prize at the end of the week I always made about time together, like a trip to the zoo or park. These were special outings that were worth the effort of saving. Be sure that you will hold up your end of the prize. Nothing is worse then your child working really hard and you giving him a rain check.

Six to twelve years of age could be the most important age band. This is the age band where we assign a cash allowance in exchange for chores. This should be structured as close to a job as possible.

In our house, my daughter had sick and vacation time, a 401K and a weekly cash allowance. She was given raises and reviews on her job performance. As she got older she also was given more and more responsibility – or was promoted as her pay increased. There were times that she was on probation when her work was below average.

We were not perfect at it.

The goal is to help get them get ready and see what the work world will be like. Keep in mind that they have no idea what the work world is like. The trick is not to scare them to fear the work world, but ignite them to be excited about work and earning money. So if you find that your child doesn’t like this method, it might not be a good way to teach this skill.

We had times we had to back off because the demands of school were too much then we would go back to the structure of the job for allowance.

My daughter was not dutiful in her 401k contributions. In our situation they were elected contributions and I matched them 100% they matured at age 16 and were to be used to by a car. I am sure looking back I bet she wished that she had been more alert to what was going on. :)

Talking with my daughter and other teens about this age bracket, I have found that it is very very important to assign the amount of money that will be paid each week and stick to it. As when you get paid. You know that your pay check will be there to pay for the things that you need and desire, the allowance is how your teen will start to learn to budget. If it is inconsistent they will not be constant with their habits.

Looking back at this, I fell short. I often paid my daughter late or missed a week. I know now after talking with her and other teens that this can be a source of concern in their security with money.

Thirteen to fifteen years of age are the ages where teens start to learn about earning money from outside the home. This comes in the form of small jobs found in the neighborhood or through friends and family such as babysitting, mowing laws, filing, ironing, etc.

This age is important as in this age bracket your teen is learning how to budget more money then they have had in the past. It is time for mom and dad to back off purchasing everything they desire. As hard as this sounds, it is time for parents to help their children to set goals with their money.

It is also a time to celebrate and have fun – not spending – but the possibilities that earning more money bring.

Sixteen to eighteen years of age are the hardest years.

These are the years where allowance is stopped and your teen is earning her money on her own. Oh! It is so hard. But these years are so important. She has only a few more years before she can be out on her own and this is the prime time to practice.

This is the time to get a job outside the house that fits with her life and school. Learning to navigate all that comes with working more hours, bosses, co-workers, and earning and budgeting money is vital to do these years before they leave for college.

It is so important to give our children the tools to be financially healthy. It starts early.

Pre-Budget Information and Disclaimer

I am a huge Dave Ramsey fan. I won’t spend a lot of time talking about Dave Ramsey because you can Google him and learn all about him and see if you like his approach to money as much as I do.

Dave Ramsey says that ever dollar has a name or an assignment. He believes in a zero balance budget.

He also says that 'winning' at money is 80% behavior and 20% knowledge. He says that if you want to get the results you want you have to change the way you are behaving.

His words and his radio show have changed my financial life.

My father tried to teach this to me as a child, but I never heard the goodness of what he was trying to teach me. This is a shame. It could have saved me years of heartache with money. I am still learning how to budget and win with my money. I am getting closer and closer and it feels amazing. I follow most of what Dave Ramsey teaches. Not all of my behavior has been modified, but I am getting closer every day. :)

My disclaimer is that the following budget is an example of what I have used and is a guide. Everyone’s situation will be different. This may not work for everyone.

As stated before, I have kept my life going as a single mom of a very young child maintaining a two bedroom apartment – alone – a car payment, and insurance on $8.89 an hour working full time and going to school.

After all the fixed bills were paid and the diapers and formula was purchased, I had no money left over. I had help from my parents in that they brought me groceries so that I didn’t need to go to the food bank. They put gas in my car so that I could get to work. I worked really hard to get promoted at work – and did. In time my parents didn’t need to help me as much and eventually they didn’t need to help me at all.

Shortly after I was purchasing my very first house – alone and on my own.

Budgeting That Will Help Your Teen:

How do you help your teen start to see what things will cost when she moves out? The old fashion way – put pen and paper to it. Here is a sample budget to get the conversation going.

First, assign your fixed out put. Things like your rent, car insurance and any car payment. Hopefully, you have worked hard and already purchased your car in cash before you have moved out and don’t have a payment, but we will run the numbers with both scenarios.

Second, list all the things that are more flexible. These items are necessary, but have more flexibility than a rent payment or car insurance. These are things like food, gas for your car, entertainment, and household items.

You will also need to know the amount of money you make each month. Here is a general idea for our budget. A person making $7.25 an hour 40 hours a week will bring in about $1,000 a month. The same wage working 25 hours a week will bring home about $700 a month.

Here is a chart of our Fixed out put assuming there are roommates sharing the rent and utilities. In this example there would be two girls to each bedroom in a two-bedroom apartment.

Fixed	Per Month Alone	Share	Per Month w/Roommates
Rent	$1,000	25%	$250
Car	$250	100%	$250
Car Insurance	$100	25%	$25
Electric	$150	25%	$38
Water	$100	25%	$25
Phone	$50	100%	$50
Totals	$1,650		$638

Flexible	Per Month	Share	Amount
Food	$200	25%	$50
Gas for Car	$200	100%	$200
Entertainment	$100	100%	$100
Household Items	$100	25%	$25
Totals	$600		$375

Grand Total	$2,250		$1,013

Looking at our numbers – not so scary – with one exception. We are working a job that pays $7.25 an hour this brings us home about $1,000 a month when working 40 hours a week. That is full time work and won’t leave much time for schoolwork or a social life.

What is worse, it looks like it will leave no money left over. What happens when you take the car payment out of the equation?

Fixed	Per Month	Share	Amount
Rent	$1,000	25%	$250
Car	$0.00	100%	$0.00
Car Insurance	$100	25%	$25
Electric	$150	25%	$38
Water	$100	25%	$25
Phone	$50	100%	$50
Totals	$1,400		$388



Flexible	Per Month	Share	Amount
Food	$200	25%	$50
Gas for Car	$200	100%	$200
Entertainment	$100	100%	$100
Household Items	$100	25%	$25
Totals	$600		$375

Grand Total	$2,000		$763

Suddenly that looks a lot better!

You know what would look even better?

Working the same or less hours for more money. Up your hourly wage to $10.00 an hour now you are making close to $1,600 a month for a 40 hour a week job and about $1,000 a month for working 25 hours a week.

Is this starting to make sense? Are you starting to see how you put pen and paper to your income and output to see what you can and can’t afford?

This is the first steps towards getting a budget together and living on your own.

The idea is to have a little output as possible and to continue to drive your input up. Eventually, there will be line items on here for savings, investments and charity. And THAT is where you really start to see amazing things happen.

Other Ideas

Other ideas to help when money is tight and your teen wants to move out - have them look for a job leasing apartments. I did this as a young woman in my early teens. I got a discount on my rent.

If your teen needs money for school, have them find a job that has tuition reimbursement as a benefit. Lots of hospitals, banking and healthcare companies offer these types of benefits. It’s a good job with a better wage that will offer a more robust benefit package.

Your teen should start thinking in terms of total compensation. This is how a company compensates individuals for your time working. It can be in more than just wage. Companies offer benefits to working at their company such as health care and tuition reimbursement.

Save to get what you want.

It has been a practice in our house only in recent years not to use credit or credit cards. This is an argued practice so check it out and see how it works in your life. My suggestion to a teen just starting out defiantly is - don’t have one. It’s too easy to give in to temptation and use them.

Believe in yourself. Believe that you are enough and that you have the tools inside you to build your life the way you dream it!

At age 27 I had purchased my first home on my own as a single mom. That was only three years from those days of making $8.89 an hour. I used the simple budgeting shown above to help me save for my down payment.

I don’t have a lot of money knowledge I am learning all the time new ways to be better with my money. I hope that we have taken some of the mystery away from simple budgeting. Give it a try. Let me know how it goes!

You can listen to our podcast on the subject of Money and Budgeting. The link is below for iTunes. The show title is Money and Budgeting. Thank you!

Resources:

Paper Hope Street Team: Money and Budgeting (On iTunes)

http://itunes.apple.com/podcast/paper-hope-street-team/id480592651

Millionaire Mind by T. Harv Eker

http://www.amazon.com/Secrets-Millionaire-Mind-Mastering-Wealth/dp/0060763280/ref=sr_1_1?s=books&ie=UTF8&qid=1328311968&sr=1-1

How to Behave so Your Children Will Too by Sal Servere Ph.D and Tim McCormick

http://www.amazon.com/How-Behave-Your-Children-Will/dp/0670891533

The Graduate’s Survival Guide by Dave Ramsey (book and CD)

http://www.daveramsey.com/store/kids-teens/the-graduates-survival-guide/prodgsg.html

Dave Ramsey’s Series for Kids ages 3-12