The importance of money management for teenagers cannot be underestimated. Teaching young people the basics of responsible money management while they are still in the home can help them avoid a wide range of financial pitfalls later in life. Parents and other adults can provide instruction in money management for teenagers by identifying a few basic principles of financial management and then applying them to real life situations that the teenager is already facing. These basics include understanding the difference between a need and a want, managing expenses so they are less than income, and the importance of establishing a pool of financial resources and adding to those resources on a regular basis.
One of the most basic lessons of money management for teenagers is to help the young person understand what constitutes a need and what is actually a want. Needs include food, clothing, and shelter, while wants would be new music, a new electronic gadget, or tickets for some type of social event. Teaching young people to consider and classify purchases as needs or wants and giving priority in spending to needs can go a long way toward helping that young person become an adult who manages money well.
Along with differentiating between needs and wants, teaching a young person how to budget all types of expenses is very important. The particular aspect of money management for teenagers includes learning how to put together and follow a practical budget. Beginning with the amount of income available, funds are allocated first for needs, with the surplus used to begin some sort of savings or investment account as well as to supply funds to purchase items the teenager wants but could do without if necessary. Making sure that the total amount of the budget is less than the net income generated each month will go a long way toward preventing the teenager from going into a lot of debt later in life.
A final aspect of money management for teenagers is to emphasis the importance of saving. Once basic living needs are met, a portion of the income remaining should be placed into a savings account. It does not matter if the amount is somewhat small at first. Teaching teenagers to save a little out of each paycheck, even if that amount doesn’t seem worth the effort, creates a habit that will serve them well throughout life. As those small amounts lead to a savings account balance that is significant, the teenager will likely feel some amount of personal accomplishment, which will only further increase the chances of continuing to manage money responsibly.