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What's The Best Way To Teach Kids To Budget?

Finance expert Jean Chatzky has the answer.

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gif of kid friendly budget tools
Sarah Anne Ward (Prop Stylist: Anna Lemi)
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Every Thursday this month, AARP Financial Ambassador Jean Chatzky is answering questions from Girlfriend readers.

Q: We never gave the kids an allowance — they did chores and we gave them $ to go out with friends or buy things. Now, as teenagers, they’re terrible at budgeting. Is it ever too late to start giving an allowance and how do we teach them to budget?

A: Nope, although with many teenagers you’ll get more pushback on new rules than you would with younger kids. (“Mom, this isn’t the way we used to do it!) Stick to your guns and they’ll get over it, just make sure that you give this allowance the right way.

The problem with the way many parents hand out allowances is that there’s no ask for the money. What you want from your kids doesn’t have to be repayment in the form of chores, it can simply be that they’re really learning how to handle money.

How do you get there? Pair your new allowances with a list of things that you are no longer going to buy for your children. These should be things that they want and that you currently buy them: Fast food, movie or concert tickets, gifts for their friends, gas for the car. Pay close attention to how they use their money now in order to come up with the best list. Then, give them enough to buy what you consider to be a reasonable — but not excessive — amount of these items and tell them that other than on payday, the bank is closed. Then it’s their job to budget their money for things that you know they really want. That’s how they learn.

If you want to give them an incentive to work (and I’m a big believer that teens should work — I saw firsthand with my two teens that money they earned was much more valuable and respected than money they got from me in the form of an allowance) you may even want to consider setting the level of the allowance at a smidge less than what you think is reasonable. Then tell them it’s up to them to make up the difference.

As the years pass before your teens get to high school, the challenge is to increase the level of the allowance while simultaneously increasing the items on the list of items your kids are solely responsible for. The goal is that before they head off to college or adult life, they are able to handle a bigger chunk of money without blowing it in a few days. That’s how we learn to make our paychecks last two weeks and how we learn to make our summer wages stretch over the course of two semesters. It’s trial and error in the beginning, but you’ll be glad you took the leap.