For Parents

How to Help Your Teen Budget Their First Paycheck

We help guide you through the process of setting up a bank account for your teen, how much they should save with every paycheck, and how to budget their first paycheck as well.


They grow up so fast, don’t they? One minute our kids are starting kindergarten, and the next, they are getting their first paychecks at a job! If you’re anything like me, you want to make sure they start their employment journey on the “right” foot, and budgeting where their money goes is an important first step.

Budgeting can be scary and feel restrictive to kids and teens, so having financial conversations early and often is crucial to their success. Budgets allow us to promote financial stability and independence by preventing overspending while promoting values-based living that will enable you to prioritize spending on a lifestyle that aligns with your values.

Let’s discuss how to budget your teen’s first paycheck! If your kids are just starting to learn about paychecks, have them read our paychecks 101 guide for kids too.

Setting Up a Bank Account

If you have been giving your kids an allowance, they probably already have a savings account where you have been depositing money that they are setting aside for their savings goals. Now, it’s time to set up a checking account where paychecks can be deposited. 

This will allow them to have a debit card associated with the account to pay bills and spend their money on what they need.

When setting up a checking account, ask the bank to associate their savings account with the new checking account so you or your teen can transfer money into savings when they get paid.

Use this time of their life to have meaningful conversations about personal finance, like the differences between debit and credit cards, how electronic and physical checks work, how long it takes different banking transactions to be reflected in their accounts, what banking fees are such as overdraft, late, or prepayment fees, and how to manage debt healthily to build up credit history.

Paying Taxes

When I got my first paycheck as a teenager, no one warned me that the government takes a cut of the pie before I get my part of the monies earned from a job, and that shock hit me hard. I started to think that the government was greedy and taking too much money away from a kid who desperately needed it more than they did.

A mentor of mine at work was kind enough to talk with me about what tax money is used for and the important role that the government plays in our lives. 

The next point about taxes to make to your teen is that they may need to file taxes annually by the April tax filing deadline, just like you do, depending on where they receive their income from and how much they earn. The benefit of filing taxes as a teen is that it builds the habit of filing and allows them to receive a refund of monies they paid in during the year. Head over to our parent’s guide to teaching taxes for more information.

How Much to Save From Each Paycheck

This is a perfect opportunity to have a conversation with your teen about setting goals, meeting milestones, and following through on your plan until the goal has been achieved, then setting new goals. 

What’s the best way to set savings goals? What is the best kid and teen-friendly way to explain goals? Start by setting short-term goals because those take less time to achieve and allow them to set goals about what they want to be/do/have. 

Start by setting one short-term savings goal. Then, create a budget based on the new responsibilities they will have now that they are earning a consistent paycheck. 

Help your teen view savings as a positive experience by offering extra incentives such as splitting the cost of a big savings goal with them, so you chip in 50% of the goal if they do. Examples include saving for trips with friends, school activities, or a car when they are old enough to drive. 

The term “pay yourself first” is widely used because it’s a sound principle to follow and helps to establish discipline while prioritizing saving and investing. Encourage your teen to start saving 10-20% of their net income in their savings, retirement account, or a certificate of deposit (CD) through their bank.

Employers will usually allow part of your paycheck to be directly deposited into your checking and the other part into savings, or your teen can set up an automatic transfer from checking to savings the day after their paycheck is deposited. 

Setting up automatic savings at a young age teaches them to live off of less than they make, and they get used to not even seeing that money hit their bank account, so they don’t have the opportunity to miss those funds. 

Budgeting the Rest of the Paycheck

It’s important to give teens some responsibility for providing for themselves once they start making their own money because this promotes a healthy relationship with money. We recommend not using these new financial responsibilities as a punishment or negative experience because this will impact your teen’s relationship with money negatively.

Instead, use this as an opportunity to reduce the amount you give them as spending money for outings with friends or ask them to pay for a small bill such as their cell phone or their part of the family car insurance plan. This allows them to see how much things cost and realize that money is a finite resource that is gone once it has been spent.

Recently, my nephew started driving, and my sister has him pay for his car insurance and gas. I remember that he called me after filling up the car for the first time because he thought that something must be wrong with the car. I chuckled as I explained to him that what he just paid for a tank of gas is normal in the current economic climate and that we have all had to cut down on how much we drive due to the cost of gas going up so much.

This was eye-opening for him because he had been giving a small gas stipend ($50/week) to my sister to drive him back and forth to work for the last two years. He has now realized that the $50 per week that he used to complain about being too much to pay for a ride is nowhere near the amount that was actually being used in fuel to get back and forth.

My nephew is saving for his first apartment and wants to start college in the fall this year, so we have sat him down to create a budget that looks like this:

  • Takeout $150
  • Cell phone $50
  • Entertainment/dates with girlfriend $200
  • Fuel $300
  • Apartment deposit savings $100
  • College savings $200
  • Total: $1,000

This budget is based on the hours he worked during the school year, but his hours will change now that he is out of school for the summer and has the opportunity to work more hours. 

We have a separate savings account set up for him to contribute money from his additional hours worked that can serve as an emergency fund to cover car repairs, saving for a new cell phone, or cover books for college. He understands the concept of paying himself first, and money goes into his emergency fund before anything else.

Allowance Shifts

Allowances should be shifted once your teen starts earning their own money. Again, this isn’t a punishment for them, and you aren’t being mean by reducing or eliminating their allowance. This allows them to shift their thinking into learning to calculate how many hours they need to work to afford a major purchase then evaluating if that purchase is worth the extra hours at work or if the money could be better spent elsewhere.

Teens and young adults that can use their parents as a financial safety net don’t feel as much of a need to save their money as their peers that don’t have parents that can back them up financially if they need it.

What shifts should you consider making to allowance?

You can still provide for their necessities such as clothing, activity fees, and school lunches. This doesn’t need to change now that your teen earns a paycheck if you don’t want it to. 

Examples of allowance shifts include:

  • Just covering necessities for your teen, and they cover any “extras” that they want to do on their own, like going out with friends 
  • Reducing the amount of allowance paid or the frequency of payments
  • Increasing family responsibility to earn the same allowance. For instance, asking your teens to take on bigger projects such as organizing the garage or tool shed to receive their allowance 

Starting their first job and earning their first paycheck is a huge milestone in your child or teen’s life and should be celebrated! Help them to set realistic expectations for themselves and to have a healthy relationship with money by starting them out the right way early on in life. Lead by example in your own life and be open to dialogue with them about opportunities and struggles they face in their financial life as they gain more life experience. Check out our entire catalog of earning money guides for parents for more tips and tricks for teaching smart financial lessons to your kids.

About the Author

Jessica Anglin

Jessica was raised in a household where her parents didn't know how to pay bills on time and indulged in life's pleasures on a consistent basis in order to cover the misery from working jobs they hated for money that wasn't enough to live off of. She took on the role of caregiver to 4 siblings at age 15 and started her first business selling tie-dye t-shirts in order to buy food and provide a stable home. Nineteen years later, she owns three successful businesses, has earned an MBA in Finance, and works daily to set an example for the next generation on how to build wealth so they never face the same struggles.

Last updated on: July 8, 2024