Once young people get to university, they must know how to pay bills and take responsibility for their finances. Without this skill, they risk getting into debt and being unable to cover their living costs. For parents, this means teaching children from an early age how to handle money. A recent survey conducted by online student bill-sharing tool Split The Bills revealed that a fifth of parents prepare their teenagers on managing a budget. However, despite these efforts, for a lot of first-year students being responsible for personal bills can still come as a surprise. Previous reports found that, on average, students dedicate £220 a month to non-essential payments, while almost a quarter (23%) spend their overdrafts on boozy nights out. Ashley Tate, chief executive officer at Split The Bills, said: “Students have a bit of a reputation for being irresponsible with their finances, as many choose to spend their money on materialistic items or on socialising, without thinking of the consequences. “This often gets them into a tricky predicament where they don’t have enough money to buy food, or even pay their bills. This usually happens because they don’t know how to live within their means, which is a skill that can be taught from a young age.” To prevent your teenagers from developing reckless spending habits in the future, you can instruct them on how to budget, save and handle their money correctly.

Pocket money and piggy banks

The Split The Bills survey found that one in five parents use pocket money to teach their teenagers about personal finances. This enables teenagers to take control of their own purchases and encourages them to think about how they can use the money. The amount can start low and increase at a weekly or monthly rate as they get older. “Pocket money is a great way to introduce the idea of budgeting and being responsible for money,” Ashley said. “If the child receives the allowance based on chores they complete or grades they achieve, this teaches them the value of hard work.” Another way to show teenagers the true cost of money is to give them a piggy bank, as 8% of parents in the Split The Bills study found effective. They can use it to store their allowance over time and save for any expensive items they want. Simonne Gnessen, founder of Wise Monkey Financial Coaching and co-author of the book Sheconomics, said: “Piggy banks are often thought of as a way to save spending money but there are some you can buy or even make yourself that have different compartments which categorise whether the money is to spend, save, gift or invest. This shows a young person how to plan ahead.” The ability to save money is a skill from which teenagers can benefit from for the rest of their lives. To begin with, it could involve putting funds aside for an incredible experience such as travelling the world. Later, when in full-time work, it might help them get into the habit of saving for a big life event such as a mortgage or wedding, or prevent them from dipping into their overdraft when confronted with unexpected household payments.

Learning how to budget

Some students don’t keep track of their finances and have no idea where their money is going, so it’s important that teenagers have acquired this skill before they leave home. “Parents should avoid talking about money in a sense of ‘no, we can’t have that’, ‘we can’t afford that’, or ‘we don’t have the money’, because then you’re instilling a lack of a positive mindset surrounding money,” Simonne said. “Use everyday opportunities to just talk about choices, and instead say ‘this isn’t how we’re choosing to spend our money’. Where possible, give the young person opportunities to experience these decisions. “For example, if they demand popcorn and expensive drinks at the cinema, give them a budget for treats and a choice of either shopping at a supermarket and getting more for their money or using it at the cinema and getting less.” This kind of thinking encourages teenagers to spend money responsibly rather than buy on impulse. Indeed, some parents (6%) in the Split The Bills survey said they track their teenager’s outgoing payments to make sure they are budgeting as they should be. “When a teenager begins earning, get them into the habit of budgeting by helping them to write a list of all their outgoing payments,” Ashley said. “That way, they can identify what they have left spare and whether they can cut any payments down.” To help young people think realistically about how much everything costs, you could show them your own monthly budget, based on your income and expenses. When they’re old enough, it could also be beneficial to include them in your financial decisions.

Responsible spending habits

Research shows that younger generations have a more ‘treat yourself’ approach to spending. This study found that 93% of participants from Generation Z—young people born in the late 1990s or early 2000s, also called Centennials—buy new clothes every month, while in this survey a staggering 95% of millennials—roughly, people aged 21 to 37—confessed to impulse shopping. Teaching your teenager to resist buying everything they want and consider whether a potential purchase is something they genuinely need is crucial. Setting a good example with your own spending habits is a step in the right direction. Ashley said: “If they see you buying a new pair of shoes each month, they will accept that as the norm and be likely to follow in your footsteps. If you show them that there’s something you want, but you aren’t going to buy it because it isn’t a necessity or a priority, you’ll encourage them to do the same.” “Everyone makes mistakes,” Simonne added. “If, as a parent, you get into a pickle—perhaps by accruing debt—while your kids are around, or even before then, you’ll have learned lessons that are absolutely valuable to pass on. Show your child how to avoid the same pitfalls.” A study by Yes Marketing found that social media influenced more than 80% of Centennials’ purchases. For this reason, it’s important that teenagers know not to give into peer pressure or buy something just because it’s a trend on their Instagram feed. “Help them identify their own values and build their self-esteem so they don’t feel like they have to buy things or do what their friends are doing in order to fit in and belong,” Simonne said. Educate teenagers on the difference between a want and a need. Knowing this will allow them to evaluate each purchase and be able to say no to themselves if they think the money would be better spent elsewhere. Help them identify whether there’s a cheaper alternative to something they want—this might be having friends over for a homecooked dinner rather than going to a restaurant. Simonne said: “It’s always good to show somebody how to predict future spending, and plan for what they know is coming. Breaking down fixed monthly costs and occasional costs is a good system and structure for everyone to follow.” Teaching your children these lessons at a young age, when they don’t have the pressure of paying rent or bills, will allow them to make mistakes while having a safety net. When they do eventually leave the nest, knowing you’ve given them the skills they need to be financially independent will put your mind at rest.

Survey data

“How do you teach your teenagers to handle money?”

Answers

Percentage

I give them pocket money for doing chores 20.3%
I give them a piggy bank to save money 8.3%
I teach them how to budget 20.4%
I ensure I track their outgoings 6%
I don’t teach them how to handle money 5.5%
None of the above 53%