Teaching Your Teens About Money

Financial literacy is something you can learn at almost any age.

As a parent, you play a vital role in helping to shape your teenager’s financial behaviors. Whether your teen is starting her first job or she’s just starting to think about her fiscal future, you should take the time to show her the ropes. Here are some tips to help your teen better understand and manage money.

Budgeting 101

Your teenager needs to learn how a budget works. If your child is working a part-time job or has an allowance, help her set up a budget that shows how much money she’s making and how much should go to savings and spending. 

If your teenager doesn’t have a job yet, try giving her a set amount of money for a specific purchase, such as school lunch for the month. This is a good way for her to practice budgeting. If she buys something else and suddenly has to make lunch at home, she’ll quickly understand the true cost of her spending.

Another way to teach your teen about budgeting is to show her the family budget, and how you pay the bills and make ends meet each month. Having your teen watch you pay bills from start to finish will give her a real-world example to follow.

Good Vs. Bad Debt

As you know, most adults acquire debt to afford important purchases like a home, a car or a college education. But taking on the wrong kind of debt can quickly leave you in financial straits. Your teenager should learn that there are two forms of debt to consider. Good debt is an investment that will grow in value or generate long-term income. Taking out low-interest student loans to pay for a college education, getting a mortgage to buy a home, or paying an auto loan are all examples of good debt. Bad debt includes purchases that don’t generate long-term income and quickly lose their value. Bad debt usually carries a high-interest rate. A good rule to impart to your teen is that if she can’t afford something or doesn’t need it, she should think twice about the purchase.

Savings

Learning the importance of saving and getting into the habit is a vital skill. To teach your teen this lesson, encourage her to start putting aside a small amount every week to save for a larger purchase such as buying a car. Have your teen put a certain percentage of her money earned (5 or 10%) into a separate savings account. If your teen’s employer offers direct deposit, show them how to set up an automatic transfer of funds from her paycheck. You can add further encouragement by offering bonus money that you’d add to the account, based on what she saves each month. When your teen decides what she wants to save money for, work with her to set a weekly or monthly saving goal.

An automatic savings app is another good way to help your teen save because she can see her money being saved in real-time. Quality apps can help her set saving goals and offer alerts for automatic deposits.

Money Management Apps

Apps are great for helping with your finances and there are many out there that can help manage your money. You want to find an app your teenager will consistently use. This means it needs to be simple to use and engaging. Likely, your teen is already pretty handy with her phone, but it’s a good idea to do some dig. Look around, read some reviews, and try a few apps yourself. Once you find a useful one, share it with your teen — you may want to keep using it for your own needs.

Set a Good Example

Teenagers often take cues from their parents’ behavior and that includes how Mom and Dad manage their finances. To set a good example, consider including your teenager in some of your financial decisions. Whether that’s working out the monthly family budget or showing her how to save on groceries, having her interact with the process can have a profound impact on the way she handles money. Sharing real-life examples, experiences and financial mistakes can also be a good way to teach your teen about managing money. Teens appreciate trust and transparency. Keep your money conversations short and avoid lectures to keep your teen engaged.

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