How Should a Teenager Handle Saving vs. Spending?

Saving vs. SpendingThe saving vs. spending transition is something of a rite of passage every teenager needs to experience in order to get on the road to financial security and independence later in life. But it’s also a surprisingly difficult lesson to learn, since saving money is a major component of money management overall, and teens are usually seeing for the first time.

This is especially true once they land their first job (check out these job ideas for teens), and begin earning money on regular basis. But that’s also the perfect time for them to begin learning the critical difference between saving vs. spending.

How do you make that happen mechanically?

Create the Motivation

There are four major obstacles to teaching teenagers the critical difference between saving and spending; or more particularly, the need to save money at all:

  1. Teenagers live in the moment (the I want it now syndrome)
  2. Suddenly having money is like a high, making it difficult to control
  3. The lack of financial obligations means a lack of spending priorities, or any necessity to have them
  4. Teenage optimism can kill the motivation to prepare for the future

When preparing teens to save money, you have to understand that each of these factors are inherent in the teenage mindset. You can’t make them go away, so you have to come up with a work-around strategy.

Simply telling your teen that they need to “save for the future” will probably be a waste of time. Most teens just don’t get the concept. Instead, start by setting near-term goals, such as saving money to buy a car, to have spending money at college, to pay for a vacation or a trip, or whatever it is that might motivate them.

The goal has to be both tangible from a teenage perspective, and within the foreseeable future. Start by asking your teen what they want badly enough to save money for, and take it from there.

Developing Good Habits that Will Last a Lifetime

Not all parents are motivated to teach their kids to save. You might find it necessary to first motivate yourself to be prepared to pass this lesson on your teenager. If you’ve been a saver all of your life, then you understand the benefits. Some of those benefits include:

  • Having enough cash available to avoid going into debt
  • Worrying a lot less about money problems because you have a cushion
  • Being able to save money to buy and do the things that you want
  • Creating long-term financial security through investing and saving for retirement
  • Having the greater flexibility that having money provides

If you’ve never been a saver yourself, you’re probably aware of the disadvantages that not having money leaves you with, and you’ll want teach your teenager a better way.

Even if your teenager doesn’t realize it, mastering the saving vs. spending balance will have important consequences throughout their lives. The sooner that they grasp that there needs to be a balance, that saving money will be absolutely essential to their future security and prosperity, the more effective the lesson will be.

Savings Strategies for Teenagers

We should never assume that teenagers know how to save money, as though it’s as natural as walking and eating. To a kid who’s never done it before, it’s the true act of learning an entirely new survival skill – and that’s how it needs to be treated. Try some of the following strategies, and see which one works best.

Spend the Odd Amount and Bank the Rest

This is a strategy that I used myself when I first started working as a teenager. I would keep the odd amount of my pay to spend, but bank the larger chunk. For example, if my paycheck for the week was $147, I’d put $100 in the bank, then keep $47 – the odd amount – for myself to spend. There would be no limit on my spending of the odd amount, which gave me a sense of having control over my money. A rising bank balance didn’t hurt on that front either.

Set a Weekly Savings Budget

Your teenager can also decide on saving a flat amount of money out of each paycheck. Even if it’s a small amount, say $25, it’s a step in the right direction. Your teen can start out with a small amount for savings, and increase it over time as their motivation to save increases.

Do the Saving for Them

Some teenagers seem to be better at adopting a savings habit than others. If your teen is having a particularly difficult time with it, you may need to get more directly involved. Rather than relying on your teenager to save a certain amount of money, you can instead have them turn a certain amount of money over to you, which you will then put into a savings account.

If you are at all concerned that the teen will access and spend the money in the bank, you can set up a custodial account giving yourself primary control. That will not only allow you to deposit money in the account, but it will also give you full control over how the money in the account will be spent.

Set Up a Payroll Deduction

Even for part-time jobs, many employers will allow you to set up payroll deductions into specific accounts. Just as they would if they were an adult with a full-time job, your teenager can set up a payroll allocation, that will have some money going into the checking account for spending, while the rest goes in savings. The fact that it happens by direct deposit will remove the human factor from the equation.

It’s important to understand that no teenager will save all of their money, so that objective has to be abandoned no matter how important the reason for saving might be. They have to maintain some control over some of their money, even if they spend it in ways that you consider to be completely frivolous. The critical first step is getting them to save money at all, and then to adopt it as a good habit going forward.

If you can accomplish at least that much, you‘ll have them heading in the right direction. And where they will go with it as they get older will be completely up to them.

How are you planning on helping your teenager manage their saving vs. spending? Leave a comment!

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  1. Melody

    It has always been my opinion that it is a crime that we do not teach time value of money and compound interest as a math lesson in school. I think that teens should learn this lessons, and you provide many tips here for just that.

  2. JP

    Great topic. My parents had me working from the age of 12. Moving lawns was my first gig. At age 13 my Mom brought me into the local grocery store (whose bi-line was “home of the red carpet service”) and asked the manager if they would take me. A year later when it was actually legal for me to work in the state of Illinois I became a bagerg.

    Working hard for a dollar was always expected of me. How to save a dollar was not.

    Later in life I graduated from college and bought a condo, bought new suits and drove around in a brand new car.

    My savings notions were upside down.

    Candidly, it starts with the parents. Kids (including teenagers) pick up on their parent’s attitude towards money. Once teenage angst departs they float back to those familiar parental habits.

    Some ideas:
    1. Demonstrate the wonders of compound interest by putting a $1 in a jar each day and treat each day like a year to see. Watch the interest grow with them.
    2. Make them pay for things they care about – prom, dates, some of their clothes.
    3. Set up a ROTH IRA if they work. Even if they don’t see the value do it anyway.