What Is a Budget? A Guide for Kids and Teens

By Nadine Araksi · Last Updated December 22, 2021
Teenage boy in a bedroom doing work thinking

For some of us, budgeting can feel about as much fun as parent-teacher evenings or changing the winter tires on the car. Yet, as parents, we know the benefits of creating—and sticking to—a budget. It’s the difference between having money at the end of the month and breaking out the credit card. Again. 

Knowing the basics of managing a personal budget is an essential life skill that our teens will also benefit from learning. As kids get older, they quickly discover their new-found independence often requires some dough—and they need to know how to save money. As a parent, making sure you set the foundation for them to spend wisely is important. After all, acquiring budgeting skills is a cornerstone to financial literacy, and the concept is easier to pass on than you might think.

In this guide, we’ll share the purpose of having a budget, explain the importance of creating a budget, offer suggestions and budgeting tips for tweens and teens, and recommend what to consider when building a budget (spoiler alert: this part can be really fun!).

We’ll also look at how a money-management app like Mydoh can help make managing a personal budget and encouraging sound spending habits simple.

Read on to learn how to budget money.

Key takeaways

  • A budget is a plan for how to spend and save your money.
  • A budget lets you track your income and expenses and is a useful tool to help you avoid debt.
  • Help kids and teens make a budget by identifying spending categories, calculating their allowance or other earnings, and set savings goals. 
  • Make budgeting fun by having kids and teens decorate spending envelopes or create a Pinterest board with images that depict their dreams and future goals. 

What is a budget?

Simply put, a budget is a plan for how to spend and save money. Also known as a personal budget, it’s a practical framework for comparing how much money you have coming in and what your expenses are over a period of time—it could be a week, month, or year. For kids, that “income” might look like monetary gifts, an allowance, or a part-time job. 

Creating a budget is also a great way to get kids to consider future goals and plans, such as buying their first car or saving for post-secondary education. It’s a tool that can help them define the experiences they’re hoping for, and how they may want to live as they grow into adults.

What is the purpose of a budget? 

The reason to create a personal budget is to track your income and expenses, so it’s easier to stay out of the red and avoid going into debt. If your teen feels like they don’t know where their money is going, using a budget can help track spending habits, making it easier to clarify the difference between a need and a want when it comes to spending. 

A budget is also about learning how to save money; in other words, making sure that funds are there when you need them. Talking openly to your kids about their future plans, like milestone birthdays, travel-related dreams, and their educational path, can help deter impulse spending and foster a desire to spend more thoughtfully.

Why is budgeting important for kids? 

Hanging out with friends and getting to explore the world without having their parents around are important developmental milestones for tweens and teens. Learning independence means building risk tolerance and resilience. But whether it’s taking public transit alone, going to a movie or the mall with some friends, or grabbing a bite, the cost of being social can quickly add up. 

Most parents don’t want their kids growing up believing that life is an all-inclusive, resort-style consumption spree. Few of us can afford to (or want to) fund that kind of lifestyle. Teaching your tweens and teens to understand how money works and be responsible for their own financial well-being could save you cash in the long run. Understanding how to build and stick to a budget could help them avoid accumulating massive debt, save for the things that matter to them, and achieve an independent and sustainable financial future. 

wants versus needs

6 tips for introducing budgeting to your tweens and teens

1. Be authentic and age-appropriate

Meet your kid where they’re at in terms of their ability to process financial concepts—your 12-year-old might roll their eyes when you start talking about an emergency fund, but maybe they’ll pay more attention if you give them a clear path to saving for the computer monitor they say they can’t live without. 

2. Discuss wants versus needs 

What’s a must-have, and what’s a nice-to-have? Ask your kid to list things they’ve bought recently, then have them categorize each item as a necessity or a purchase based solely on desire. A good needs-vs-wants example might be the difference between needing new shoes because the old ones are full of holes, versus wanting yet another new pair of sneakers because everyone is talking about them.

3. Show budget examples

Remember when you taught your kids how to play Crazy Eights by starting with an open hand? Take the same approach by showing your tween or teen the family budget, if you’re comfortable. Let them ask questions and play around with the numbers. Show them the effect purchasing big-ticket items, like a new washer and dryer, would have on the rest of the budget, and how rent or mortgage payments and utilities are fixed expenses that must be paid every month.

If you use your household budget as an example, be honest about your family’s financial situation—without creating anxiety or fear. 

4. Encourage big dreams 

Talk about the future and the kinds of things your kid might want in their life: Perhaps there’s a grad trip on the horizon, or the desire to own their own laptop. Have them create a vision board or virtual dreamscape that represents their life goals, and then challenge them to research the cost of the lifestyle they envision for themselves. Have your teen budget money toward their goal as savings, and that dream is more likely to become a reality. 

5. Discuss how to save money for a rainy day

When you’re discussing budgeting, it’s a good idea to bring up the concept of unexpected expenses, like fixing a flat tire on a bike, or replacing a lost textbook. The reality is that you can’t always forecast these events. But with a rainy-day fund, you can be prepared for what might come up. 

Some experts suggest that adults put aside anywhere from $1,000 to $5,000, or even three to six months’ worth of salary, but that amount is probably unrealistic for tweens and teens, who have only an allowance or a part-time job to count on. Instead, encourage them to set a more modest goal. Depending on the age of your kids, it could be as little as $50 or as much as $500. Explain that building this fund will allow them to cover smaller unforeseen expenses without having to rely on a credit card or borrowing the money. Kids can start putting small amounts away each week or month until they hit their target. 

If they ever need to dip into their emergency fund, they should start saving again until it’s topped up. One of the best places to keep a rainy day fund is in a separate account that isn’t used for everyday banking.

6. Don’t rush to their rescue

Did your kid spend half their phone bill money on a spur-of-the-moment trip to a food truck festival? When mistakes inevitably happen, encourage your child to talk through ideas for solving the problem, rather than rushing in to save the day financially. 

How to make a budget

The key to empowering kids to make a budget that works for them is to make it relatable. Help your tween or teen start a personal budget by following these steps.

Identify budget categories

Rent, mortgage payments, internet, and car insurance are all examples of expenses that won’t change month to month. These are the bills that need to be paid, no matter what. Ask your kids to list the fixed expenses that relate to them (such as a phone bill, swimming lessons, club dues, etc.) regardless of whether they pay them or not. 

Clothes, food, and savings are other categories that make sense for a tween or teen to budget for, but you can also make category names more personal. For example, “Fun money” is reserved for things like concert tickets, while the “Big trip bucket” is for funds they’re saving for that semester in Paris. 

Want to learn more? For more detailed information on how to make a budget, see “Budgeting 101.”

Calculate their income 

You can’t plan a budget without knowing what your monthly income is. Ask your kid to list all their regular income sources, including allowance, gift money, and part-time jobs. Then figure out how much they bring in each month. If you pay your child an allowance, using an app like Mydoh can help them manage their chore list and spending. It also lets you see how they spend their money.

Set goals

Does your kid want to start a business someday? Pursue post-secondary education out of province or abroad? Perhaps they imagine a gap year with travel opportunities. Determining these longer-term aspirations can help motivate kids to save for what’s really important to them.

Decide where they’ll save their money

Based on your child’s age and ability, discuss whether it’s time for them to open a bank account and how they’ll access it. With Mydoh, kids can spend their allowance directly from the app, which gives you both an idea of where—and how much—they’re spending. Analog methods for budgeting and saving include categorized spending envelopes or jars. This hands-on, visual approach can help solidify the concept for younger tweens. 

Learn more about how to create a budget for kids.

Budgeting can be fun (really!)

Tap into your kids’ imagination to help them see the possibilities that budgeting can afford them. A grad trip to Cuba may seem out of reach for a teen in Grade 10, but a couple years of saving toward that goal could help get them there. 

There are lots of ways to make the process of saving fun, too. Kids can decorate cash envelopes, labelling each with a purpose, such as “Weekend fun,” “Trip fund,” “Savings,” and “Donation.” They can also use jars the same way, and some tweens and teens might enjoy spending time personalizing them. Downloadable savings trackers they can colour in are also widely available and can be a fun way to track savings goals. Some kids might find creating a Pinterest board with images that represent their goals inspiring and useful.

Plus, creating a budget using real-world goals can boost even younger tweens’ feelings of independence. And the skills they’ll learn can help them feel more prepared for leaving home for the first time.

Track allowance and spending with Mydoh

When building financial literacy skills, it can be helpful to use an app like Mydoh, which gives parents the tools to assign tasks. Once completed, your kids will receive an allowance every Saturday. Plus, the Mydoh app gives parents visibility into their child’s spending and saving while they work at mastering these skills. You can even react to transactions with fun emojis to help build good spending and saving habits. 

Download Mydoh and help build the foundation of financial literacy for your kids and teenagers.

This article offers general information only and is not intended as legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. While the information presented is believed to be factual and current, its accuracy is not guaranteed and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author(s) as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or its affiliates.

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