The teenage years bring many exciting developments for kids and parents. Your child may learn how to drive, graduate from high school, and move out of the house for the first time. Part of preparing them for the exciting road ahead includes teaching your teen about money.
Set your child up for financial success in the future by sharing all the basics they need to know about money. Use our tips below to get started.
Teaching Teens About Money
Your lessons should cover both short-term and long-term topics related to money. Start by defining wants and needs. A “want” is something you desire but isn’t critical to your survival, such as a new video game. A “need” is something you require to survive, like food, shelter, and clothing.
Next, introduce the idea of budgeting. Explain that budgeting ensures you have the money to pay for all your needs while still covering a few wants. You should also explore the concept of savings and why it’s important to put away some of your earnings for the future.
Encourage your teen to ask questions throughout the conversation. You can elaborate on anything they seem interested in or confused about. Then, invite them to apply their knowledge to real-world situations. Here are a few examples.
- If your teen has a job, help them understand their pay statement and explain taxes and other deductions. To encourage good savings habits, have them put aside a portion of their earnings into a designated savings account.
- If you give your teen an allowance, explain how you arrived at the amount by outlining their chores and other duties. Let them see the value of exchanging labor for money.
- Have them save for a big-ticket item. They can see how long it takes to put away $50 vs. $100.
- Show them how to track what they spend in a spreadsheet. This exercise helps show the value of their money.
- If they have an account of their own, schedule time with them to review their financial institution’s mobile app and explain the importance of monitoring their account regularly.
- Offer to buy them something “on credit.” Lend them the money, but charge interest as they pay you back, allowing them to understand the tradeoff of accumulating debt.
Financial Education for Teens
Now that your teen has an understanding of the basic concepts of finances and how to spend money carefully, move on to more practical topics. Start with these five concepts.
1. How to Write a Check
While paper checks may not be used as often as in the past, everyone should know how to write a check. First, explain the purpose of a check and how it’s used as a promise of money that has to be cashed or deposited.
Next, go over each part of the check and explain its purpose. Show them how to record every transaction in their checkbook register and calculate their new account balance. Then, give them a scenario and have them show you how they would fill out the check.
2. Benefits of Checking and Savings Accounts
Your teen should open a checking and savings account. At many financial institutions, parents or guardians must oversee such an account until the child reaches a certain age. However, even after that age, parents can be involved in helping their child manage their money by being listed as a joint owner who has equal access to the account.
Explain the advantages of savings and checking shares.
- A safe place to deposit money earned or received as a gift
- Earning interest on money deposited
- Having distinct accounts to separate everyday spending money from savings that can be used to plan for short- and long-term expenses or emergencies
3. How to Establish Good Credit
Explain what credit is and the benefits and drawbacks of using credit. Discuss responsible credit card usage and show them how paying off their monthly balance can benefit them in the long term. Demonstrate the danger of racking up big debts they can’t pay off by explaining how interest accumulates and how much extra they would have to pay back.
4. How to Make a Budget
Budgeting will help your teen live within their means when they leave home. Show them a basic budgeting sheet and go over what money they’ll have coming in and going out. Discuss best practices for budgeting and how they can adopt a general model for their own needs.
5. How to Apply for Financial Aid
Many teenagers want to continue their education. This may mean taking out loans to pay for college or a skilled labor education program.
If your child needs financial aid to pay for their education, don’t complete the forms by yourself. Instead, involve your child in the process.
Go over the forms together and discuss what tuition, room and board, and other expenses will cost. Look over student loan terms and what your child could be responsible for paying when they leave school. These realities may inspire them to try other approaches to paying for college or furthering their career.
Continue to talk to your child about money as they grow older. Opening a dialogue about financial concepts now can help them avoid financial pitfalls later on. Don’t underestimate the importance of setting a good example with your own finances — and include them in conversations about money when appropriate.
Check out our WalletWorks page for more tips on how to save money.