Teaching teens about money is a crucial life skill that will serve them well into adulthood. Here are some effective strategies to impart financial wisdom to your teens:
Lead by Example: Children often learn by observing their parents. Be a role model when it comes to money management. Demonstrate responsible spending, saving, and investing behaviors. Show them how you create and stick to a budget, save for goals, and make wise financial decisions.
Start Early: The sooner you begin teaching financial literacy, the better. Even young children can learn basic concepts like saving and spending. As your child grows, introduce more complex ideas gradually.
Open Communication: Create an environment where your teenagers feel comfortable discussing money matters. Encourage questions and be open about your family’s financial situation. Share stories of both successes and mistakes to illustrate the consequences of financial decisions.
Allowance and Earning: Consider giving your teens an allowance or encouraging them to earn money through chores or part-time jobs. This provides them with a source of income to manage, teaching them the value of money and work ethic.
Budgeting: Teach your teenagers how to create a budget. Help them list their sources of income (allowance, job, gifts) and expenses (e.g., clothes, entertainment, saving for goals). Emphasize the importance of balancing income and expenses.
Saving: Encourage saving by helping your teens set goals, such as saving for a phone, car, or college. Open a savings account in their name and discuss the benefits of earning interest. Stress the importance of saving a portion of their income regularly.
Needs vs. Wants: Teach your teenagers to differentiate between needs and wants. Explain that needs are essential for survival (food, shelter, clothing), while wants are desires that can wait. This helps them make responsible spending choices.
Delayed Gratification: Instill the value of delayed gratification. Teach your teens that waiting and saving for something they want can be more satisfying than impulsive purchases, which may lead to regret.
Banking and Financial Accounts: Introduce your teenagers to the world of banking. Help them open their own savings and checking accounts, and explain how these accounts work. Teach them how to read bank statements and manage their accounts online.
Credit and Debt: Discuss the basics of credit and debt. Explain what a credit card is, how interest works, and the importance of paying bills on time to maintain good credit. Warn about the pitfalls of excessive debt and the importance of responsible borrowing.
Investing: Introduce your teens to the concept of investing. Explain different investment options, such as stocks, bonds, and mutual funds. Discuss the idea of long-term growth and the benefits of starting early.
Taxes: Teach your teenagers about income taxes. Explain what taxes are, how they are withheld from paychecks, and the importance of filing tax returns accurately and on time.
Financial Goals: Help your teenagers set specific financial goals. Encourage them to think about short-term and long-term objectives, such as saving for college, a car, or retirement. Break these goals into manageable steps.
Philanthropy and Giving: Instill the value of giving back to the community. Encourage your teens to donate a portion of their money or time to causes they care about. Show them how small contributions can make a positive impact.
Financial Responsibility: Finally, stress the importance of financial responsibility and ethical behavior in financial matters. Teach them to be honest, transparent, and accountable in their financial dealings.
Teaching Teens Financial Literacy Pays Off in the Future
Today’s schools are starting kids earlier in just about every department: math, science, literature, languages, and so many more.
The idea here is that, since children soak up knowledge faster and more readily than adults, it’s best to get the lessons going at an early age so they’re more likely to retain them into adulthood.
In short, taking advantage of wisdom that you learned at age 6 is a lot easier than stumbling onto it at age 26 and playing catch-up with the world. This same philosophy should apply to the financial world as well, particularly savings and budgeting.
Starting Off on the Right Financial Foot
If kids begin the path to monetary carefulness early on, they won’t be so tempted to blow all of their earnings on toys that they’ll never play with, clothing that costs them an entire paycheck, and an overall lifestyle that they can’t afford.
This is backed up by a recent study conducted by financial literacy organizations EverFi and Higher One. They took 65,000 college students, some of which took a financial literacy course in high school and some who did not.
They were all given a survey of their financial habits, and the ones who studied basic finance in high school proved to be far more responsible with their cash than the ones who did not.
This shows that, even though they don’t always seem to be doing so, kids do pay attention to what people tell them. So, if you teach them from an early age to not carry too many credit cards, to not buy things that they can’t afford, and to set up a budget that tracks everything that they give their cash to, they’ll probably abide by those rules for the rest of their lives.
And yet, the vast minority of kids take these courses, because the vast majority of schools don’t offer them. Right now, only 17 states require that their high schools offer at least one course on financial literacy.
Why the other 33 aren’t interested in doing so is a mystery to everyone. Perhaps they feel that managing money is common sense? Because based on the amount of debt we’ve accumulated and continue to accumulate, clearly it’s not.
Until more schools get with the program, parents should take the time to educate their children on how to manage money, and they can start as early as grade school. It’s actually quite easy to do so.
Make Financial Planning a Family Affair
First, sit them down with you while you work on the family budget and explain, in simplistic terms, what you are doing and why you are doing it.
As long as you steer clear of unnecessary financial jargon, your child is likely to understand what you’re getting at. Using a budgeting system, like the one offered is best for these lessons, as its straightforward setup is easily understood by both children AND adults.
Then, apply this knowledge to their world which, despite being mercifully bill-free, can still be a financially-intelligent one.
Have them do chores or sell something useful (lemonade, cookies, crafts) so they can earn cash of their very own. Then, if they want a hot new toy or game, let them know that they will need to pay for it themselves, with their own money.
Not only will earning the toy through hard work and not just having it handed to them by their loving parents make them feel good about themselves, it will also teach them not to blow their money on cheap junk if they have something bigger and better in mind.
Kids are smarter than you think and are always eager to learn more. So why not make financial education for kids a priority, regardless of what their school system thinks? Sounds like common sense to us.
When it comes to our children’s future, providing financial education to kids is one of the most important things we can do. By getting ahead of it and making sure they develop good money management habits, we can set them up for success later in life.
In this blog post, I have breakdown top 8 financial rules they believe all kids should be taught from an early age in order to set them up for success.
Here are 8 financial rules to teach your kids:
1. Start budgeting early.
One of the most important financial rules to teach your kids is the importance of budgeting. Budgeting is a vital skill that everyone should learn in order to manage their money effectively. By teaching your kids to budget early on, you’ll instill in them the importance of mindful spending and saving. There are a few simple ways to teach your kids about budgeting.
First, explain what a budget is and why it’s important. Next, help them create a budget for their allowance or income. Finally, encourage them to stick to their budget by providing financial incentives or rewards. By teaching your kids about budgeting early on, you’ll set them up for financial success later in life.
2. Understand the value of money.
Another important financial rule to teach your kids is the value of money. Many children don’t understand that money doesn’t grow on trees and that it needs to be earned. As a result, they often take their parents’ money for granted and don’t appreciate its value.
Help your kids understand the value of money by teaching them how to earn it and save it. For example, you can have them do chores around the house in order to earn their allowance. You can also help them open a savings account so they can start saving for their future. By teaching your kids the value of money, you’ll help them develop good financial habits that will last a lifetime.
3. Spend less than you earn.
One of the most important financial rules to live by is to spend less than you earn. This rule is especially important for kids to learn because it’s so easy for them to overspend. Teach your kids the importance of spending less than they earn by setting a good example yourself. When you’re out shopping, resist the urge to impulse buy and instead stick to your budget.
You can also help your kids understand this rule by teaching them about needs versus wants. Needs are things that we need in order to survive, like food and shelter. Wants are things that we would like to have but don’t necessarily need, like a new toy or a designer outfit. Help your kids understand the difference between needs and wants so they can start spending wisely.
4. Use credit wisely.
Another important financial rule to teach your kids is to use credit wisely. Credit can be a useful tool when used correctly, but it can also lead to financial problems if not used carefully. Teach your kids about the dangers of credit by setting a good example yourself. For example, only use credit when you can afford to pay it back in full and on time.
You can also help your kids understand this rule by teaching them about interest rates. Interest is the fee that lenders charge for borrowing money, and it can add up quickly if not managed carefully. Help your kids understand the importance of paying off their credit card balances in full and on time so they can avoid paying interest fees.
5. Invest in your future.
One of the best things you can do for your financial future is to invest in it. And this is a rule that you should definitely teach your kids. Help your kids understand the importance of investing by teaching them about the different types of investments. For example, you can invest in stocks, bonds, and mutual funds.
You can also help your kids understand the importance of saving for retirement. Retirement may seem like a long way off, but it’s never too early to start saving. By teaching your kids about investing, you’ll help them set themselves up for a bright financial future.
6. Live below your means.
A good rule of thumb to live by is to live below your means. This simply means spending less money than you earn. It may seem like a difficult task, but it’s actually quite easy to do if you’re mindful of your spending. Teach your kids the importance of living below their means by setting a good example yourself.
7. Delay gratification.
One of the most important financial lessons you can teach your kids is the importance of delayed gratification. Delayed gratification simply means waiting to buy something until you can afford it. This is an important lesson because it teaches kids the value of money and how to budget wisely. When you’re out shopping, resist the urge to impulse buy and instead wait until you can afford it.
Saving has a rather ironic purpose: Your kids do it so that, at some point, they can spend. This activity has some big benefits, not only for your children’s money-education but also for their personal and social awareness.
1) To confirm that money has a value
On the most basic level, the value of money comes from the ability to trade it for something else. Your kids, for instance, can give it to a cashier in exchange for, say, some jeans, a comic book, or a snack.
In this sense, it is connected directly to the old system of bartering, which allowed people to swap goods they acknowledged as having a relative value—people adopted coins and bills simply because they standardized the currency used, and because they were more convenient to carry.
A reasonable amount of responsible spending lets your kids understand exactly what the current trading value of money is, which helps them plan financially and grasp why tracking the money they have is worth taking seriously.
2) To be part of the economic system
When your kids spend money, they support the economy, regardless of what good or service they purchase. This plays a big part in keeping communities stable. As you let your kids buy stuff, you have a great opportunity to discuss this relationship and make the connection between their spending and social responsibility.
Be sure they understand that they can have an effect on communities around the world based on direct and indirect global ties, particularly as the Internet allows them to work with vendors from virtually any geographic region.
3) To carry a goal through to completion
When kids are younger, they’re still developing their ability to think abstractly and rationally. That ability comes as their brains grow and they go through new experiences.
Impulse control, therefore, is a huge issue, with kids usually wanting to spend in the moment. Although a little splurge now and then is fine, it’s important to teach your kids to be more future-oriented with their cash so they get used to planning and budgeting.
Have them set goals for specific things they want to buy and then help them track their savings progress. When they have enough money to get what they set out to buy, make a big deal out of the fact they followed through—resisting temptation is tough!
4) To get used to having regular expenditures
Much of the time, mommy and daddy make what kids need appear, covering financial responsibilities.
As a result, a lot of kids simply assume that their parents will keep picking up the tab for whatever they need or want, which makes it very difficult for them to understand why they need to practice some restraint and frugality with money.
If they have to spend a little of what they have, they get a better sense of how to prioritize goods and services, and they have a more realistic concept about getting stuff for free.
5) To set themselves up for financial security later
Talk to most financial gurus these days and they’ll tell you that, given typical incomes, working just isn’t enough if you want to be rich (or at least, inarguably financially secure). You have to let your money work for you through investments, too.
Options like buying stocks or bonds or setting money aside in a government-backed college plan might decrease the amount of cash your kids have immediately available, but in the long term, they can provide a good return that lets your kids do more.
If your kids choose to spend their money this way, just make sure that they’ve at least outlined some broad goals. They might not know where they want to go to college, for example, but they can at least acknowledge that they want to enroll and that the money they’ll gain through investing is meant for that.
Kids are more likely to stick with a saving or investment plan if they have a clear objective for what to do with the cash.
Conclusion
Money is not meant to be hoarded. It’s meant to be spent, albeit with good planning. As you get your kids on a solid savings track, don’t forget to let them see this second side of the financial coin, be clear on how to teach kids about money.
While it’s never too late to learn, the earlier you learn financial literacy, the greater the long-term impact. That’s why we’ve compiled money methods to teach financial education to kids at every age.
Toddlers
Kids start learning the moment they are born. Initially, this learning is imitation based, like following a parent’s lead to smile, track objects, and say their first words. Whether you know it or not, they are learning and picking up your habits.
Start early by setting a good example for them to follow later. The habits they’ll pick up include developing a budget at the grocery store, paying bills on time, and resisting impulse buys. When you discuss your decision-making with your toddler, they’ll learn how to make better decisions on what to (or not to) buy.
Preschoolers and Kindergartners
While kids at this age may not understand the value of money, they should understand the need to pay for merchandise. Kids learn from shared experiences, so include them in the grocery trip to help them understand this process. To make it more tangible, leave the credit cards at home and use cold hard cash.
By 7 years old, we develop basic financial behaviors, according to a University of Cambridge report. Before you panic and think your kids are already behind, they’ve probably addressed the basics: counting and exchange.
Counting This starts with simply counting objects, but should grow to include counting coins and dollars. Show kids the different kinds of coins and bills, allowing them to recognize the differences, group them, and then count that specific set.
Exchange One of the hardest lessons to learn at this age is that something must be given up to make a purchase. Money can only be spent once. To teach this, give a child one dollar to spend in the store and focus on choosing an item they really want. The child must hand over that dollar to purchase the item and experience the exchange of goods.
First to Fifth Grade
With a basic understanding of the purchasing power of money, your grade-schooler probably now wants more. It’s time to explain how to earn money, save it, and what opportunity costs are.
Earning money Unfortunately, your mother was right and money does not grow on trees. It is earned, and for kids at this age, it should be earned with chores. Rather than an allowance, reward work with personal funds. This teaches the ultimate lesson in finance: it takes work to earn money.
Kids who earn their allowance are in the majority. A Junior Achievement USA survey found 82% of the children earned an allowance for doing chores, getting good grades, doing homework and simply being kind to others at school and at home.
Saving It’s time for a piggy bank or maybe a mason jar, instead. A clear mason jar allows a child to see the money grow over time. It helps reinforce the benefits of saving. It’s also important to introduce children to the benefits of banks. Take them to the bank with you to deposit money, explaining the benefits of saving money there versus at home. Most banks and credit unions offer savings accounts for children — and many pay interest on deposits.
It’s also important to explain why you save: short-term needs, long-term goals and establishing an emergency fund. Provide scenarios to explain how you save and why. Honesty will help them learn and appreciate real-world finances.
Opportunity cost A fifth-grader should be able to understand opportunity cost, even if you don’t use that term. Opportunity cost is the loss of potential gain from other alternatives when one alternative is chosen. You can help your child understand impulse buying versus long-term goals. It’s a constant battle that we begin learning at this stage. Explain the difference between needs and wants, and how to prioritize them. We all have impulse buys, but we must learn to recognize them and limit them.
Sixth to Eighth Grade
At this stage, you’ve established a lot of great money principles for your middle-schooler. The next stages focus on expanding on those basics concepts with income, budgeting and contentment.
Income What do you want to be when you grow up? The question at younger ages elicits a cute response. By middle school, though, it’s a real conversation about the need to find a career that will support you for a lifetime. Explore different job options and discuss both their responsibilities and their paycheck. This is also a good opportunity to explain why your salary isn’t how much you take home. Explain taxes, Social Security, insurance premiums, and other deductions from your paycheck.
Budgeting While your child doesn’t need a personal budget right now, it’s a good idea to learn how to set one. Include them in your budgeting, asking for input on financial decisions like meal planning for the grocery budget.
Contentment and giving “Mark got a new iPhone. I need one too!” It’s easy to compare ourselves to others, and for pre-teens and teenagers, the pressure is even greater. Kids at this age need to learn contentment — being satisfied with what they have rather than trying to keep up with the Joneses. Even better, they need to learn to appreciate what they do have. If they don’t already, kids should understand the benefits of giving back and donating to charity. Volunteering or donating items is a good lesson for all of us.
Looking to check your child’s financial literacy progress? Jump start Coalition created national standards for educators to set financial literacy goals. It’s a good goal for parents too. The benchmarks by eighth grade include:
Set spending priorities to reflect goals and values.
Discuss the components of a personal spending plan, including income, planned savings, and expenses.
Compare saving strategies, including “Pay Yourself First” and comparison shopping.
Illustrate how inflation and interest can affect spending power over time.
Justify the value of an emergency fund.
High-Schoolers
Teenagers are looking for and need new levels of independence. It’s not long before they are off on their own. Many of the lessons at this stage are firsthand experiences with a checking account and budgeting for college.
Personal accounts: While your teen may not use the traditional check register you learned with, every teen needs to know how to balance a checking account. Personal checking and savings accounts do not establish credit, but they do show an ability to handle your finances. While a checking account is all a teenager technically needs, it’s a good idea to open a savings account as well (if you haven’t done so already) so they can include deposits to both accounts in their budget and see firsthand the impact of compound interest.
Credit cards: Our society relies heavily on credit cards, which can have their benefits. However, they may also include high fees and interest charges, even more so for those with limited or no credit history. Teenagers must learn the dangers of credit cards and how to use them wisely. Teach them to pay off the balance and avoid buying things they can’t pay off each month. A good way to explain interest charges is to look at the interest a bank pays you on a savings account versus what a credit card charges you to use their money. Investigate student credit cards together to learn which one is the right one for your teen.
Paying for college: The cost of college is skyrocketing, and so is student debt. As you and your teenager prepare for the next step, compare the costs together, and discuss how you’re going to pay for college. Not every high schooler needs to go to college, and some schools are much more expensive than others. Along with college options, research available scholarships and loans. The decisions you make now will influence the rest of your life.
The early experiences children have with money can shape their financial behavior as adults, according to a study published by the UK government’s MoneyHelper service.
By the age of seven, the University of Cambridge study found, most children are capable of grasping the value of money, delaying gratification and understanding that some choices are irreversible or will cause them problems in the future.
The research suggests children who are allowed to make age-appropriate financial decisions and experience spending or saving dilemmas can form positive “habits of the mind” when it comes to money.
This could lead to a lifelong improvement in their ability to plan ahead and be reflective in their thinking about money, or they may learn how to regulate their impulses and emotions in a way that promotes positive financial behaviour later in life.
Make it fun
There are lots of free resources you can use to teach financial education to kids at home. If you prefer board games, Money Match Cafe or Pop to the Shops by Orchard Toys are educational and imaginative, while Cheeky Monkeys subtly provides useful financial lessons about the consequences of avarice and risk-taking.
Finally, do not underestimate the value of playing games such as “going to the shops” at home with real coins. Be sure to set a budget.
Discuss the purpose of money
Collier suggests taking photos of different items in your home that can then be classified into necessities and luxuries, triggering a discussion about what money is for.
You could use these activities as a springboard for discussions about how adults need to prioritise what they spend money on and how difficult that can be if you feel tempted to buy something you cannot afford.
The charity Child Poverty Action Group suggests you ask your child to imagine a child the same age as them, and talk to them about what that child might miss out on if their family doesn’t have money. Its spokesperson Kate Anstey says: “Speaking to children about poverty can help to raise awareness and understanding of poverty and inequality.
It might seem like a difficult topic to broach but teachers who talk about poverty in their classrooms find that children actually cope with it very well.”
Go to the shops
One of the best places to teach children about money is a shop. “Being able to handle money and buy something yourself is very special: it builds up your confidence with money.
If you pay with a contactless card, explain how it works – that although you are not using coins, the money is still coming out of your bank account – and discuss the groceries you buy. Why might you choose to spend more on Fairtrade chocolate or free-range eggs?
Are the more expensive products always better quality? Ask them whether they would like to do a blind taste test at home to check whether they can tell the difference between different-priced brands. Is it worth the difference in price?
Be on the alert for BOGOFs (buy one, get one free offers) and complicated discounts. Teach children how to compare different deals. “It’s absolutely essential that we teach children about money in context,” says Lord, a former maths teacher. “Encouraging children to work out the cost of shopping and comparing offers so they understand the value of goods is an essential life skill.”
Helping your children to master estimating is also very important, she says. “It helps children to develop a real feel for numbers so that they can easily spot when they’re being overcharged and avoid making costly mistakes.”
Make your child’s investments meaningful to them
Open a Junior Isa for your child and buy a few shares in a supermarket or restaurant chain you visit regularly with them, suggests John Lee, the author of Yummi Yoghurt, a book about investing aimed at teenagers.
That way, when you go there, you can explain to your child that you both have a “vested interest” in supporting that business and will hopefully one day get a reward, in the form of a dividend, if the business does well.
You could also talk to them about how you choose other funds for their ISAs and the impact you hope those investments might have on society or the environment. “The important thing is to involve your child and give them an awareness of the companies that you’re buying shares in,” Lee says.
Take them to a charity shop
Charity shops are particularly good places to take a small child to spend their weekly pocket money. They often find a bargain and you can use the opportunity to discuss the power of their pound: how does it make them feel, knowing they are supporting a good cause as well as getting something for themselves?
Point out the positive impact on the environment of buying secondhand and, when you get home, look up how much the item would have cost new and talk to them about how many more weeks it would have taken to save up for it.
Set your older child up for success with these important lessons.
Though a child’s teenage years are often wrought with turbulence, they’re also a turning point. After all, teenagers are at an age when they’re finally able to take on certain responsibilities, such as caring for themselves without an adult present or getting a job and earning money rather than depending on their folks for an allowance.
Now, as most parents will tell you, getting a teenager to listen and take you seriously is easier said than done. As such, you may need to pick your battles when attempting to impart wisdom to an older child. But if you’re going to make the effort, it really pays to offer financial education to kids, and you can do so by focusing on these key money skills.
1. Budgeting
Budgeting is one of the most effective financial tools out there, and it’s really simple to do. If you teach your teens to budget money carefully, they will be less likely to land in debt as young adults — and suffer the repercussions involved.
Granted, it’s not that easy to teach teenagers to budget when they only have a handful of expenses to bear, such as a cell phone (assuming you don’t pay for it) or leisure spending.
But what you can do is let your teen in on your budget — the one that covers everything from your mortgage payment to your auto loan to the food you put on the table. That way, your children will get a sense of what budgeting is truly like so that when they move out or go off to college, it’ll come naturally.
2. Saving
If saving money were an easy thing to do, more people would do it. But saving money takes discipline, and that’s something a teenager may not have at first.
That’s where you come in. Review the importance of having healthy savings account with your children and explain how it could come in handy at various points in life.
Whether it’s the spring break trip your teens will want to take or the home they’ll eventually want to buy, understanding that savings make these things possible means your child is more likely to take the idea seriously.
But don’t just talk up the importance of saving money — show your teen how to make it happen. Discuss the art of setting priorities, and explain how the process of automating savings can help your child stay on target.
3. Investing
You’re no doubt aware that investing money is a good way to grow a smaller sum into a larger one. And it’s important that you share that with your teens so that they can start putting their money to work.
If your teens earn money from a job, encourage them to open IRAs, which is generally an option as long as your teen is 18. If your children are younger, you’ll need to open custodial IRAs on their behalf.
From there, you can walk your teens through their investment choices in that account and explain the various benefits, drawbacks, and risks associated with each one. Stocks, for example, can be volatile, but they offer higher returns. Bonds are safer, but offer lower returns, generally speaking.
For the better part of my life, I didn’t know this truth. On the contrary, I believed that more money was the answer. I was convinced that if we just made more money, won the lottery, or received some unexpected inheritance, all of our money problems would vanish.
But the more we made the worse our problems became. Because I didn’t know how to manage what we had, more would have never been enough. We didn’t save, we didn’t give, we didn’t plan, and we had no idea where all the money went.
Unless your children learn simple, wise money management techniques, more money will never be enough.
The simplest way how to teach kids about money is by putting them on an allowance and then requiring them to suffer or enjoy the consequences of their financial decisions.
5 Good Reasons to Give Kids an Allowance
1. Teach kids about real life
Nothing beats an allowance for a hands-on course in values. Having their own money teaches them about responsibility, consequences, saving, and charity.
2. Help distinguish needs from wants
Do they really need that new video game or those peace sign earrings? Having their own money forces kids to think about what to spend it on. It doesn’t take long for them to realize that when it’s gone—it’s gone!
3. Put an end to the nickel-and-diming
Because the child’s allowance represents a regular expense, you create a set budget item called “Kids’ Allowances.” That brings calm to previous chaos by stopping that constant drip, drip, drip of money flowing from your pocket to random stuff for them.
4. Build trustworthiness in a child
By giving kids money to manage, you demonstrate that you trust them. And they soon learn that to keep the money coming, they need to become trustworthy.
5. Promote self-confidence
Managing money has a magical effect on a child’s self-esteem. Teaching kids how to give some of their allowances to charity, save some for a long-term goal, and spend some now gives them the tools of self-reliance.
Start young
There are no set rules for when to start an allowance program. However, I suggest waiting until kids are old enough to understand the concept that money buys things, of taking care of those things and making choices, which is usually around age SIX.
How much?
Though many families use age to determine the amount (by age, $10 for a 10-year-old is one example), think about how much money your child needs. Turning money over to them that you would be spending on them anyway is a good way to start thinking about this.
How often?
Whether it’s weekly or monthly, kids do better when you stick to a schedule.
Younger kids tend to manage their money more effectively when they get it weekly, since out of sight often means out of mind.
For older kids, consider a monthly schedule so they can learn the basic principles of budgeting.
Work for pay?
Think about your goals when it comes to the allowance-for-chores quandary. If your main goal is to teach your kids to manage money, give them a basic allowance with financial “chores” attached, such as paying for their own collectibles. If you also want to teach kids the value of working for pay, pay them for extra chores on a job-by-job basis.
Back off
The purpose of an allowance is to teach kids to become self-governing with money. Encourage kids to save a given percentage, set aside a percentage for charity (they’ll learn the value of giving back), then give them the freedom to decide how to spend the rest.
Teach Kids About Money Through Spending, Saving, and Giving
Spending
The best way for teaching money management to children through spending is by giving them the opportunity to spend their own money. I like to wait for the big spending moments and I’ll give you an example of that in a minute.
If your child wants to spend their allowance on trash trinkets, let them. Guide their choices and refrain from criticizing their decisions. Give them rules, but give them room to mess up.
It’s important to give them the opportunity to spend money on junk they don’t need. They will learn an important lesson when they don’t have money for things they really want, like a new phone or computer.
Savings
Speaking of computers, two years ago my daughter decided she wanted an iPad. I wasn’t buying it and she knew it.
She saved all of her allowance, birthday, and Christmas money for two years. This year she purchased her own Chromebook.
Baby girl could have continued saving for the iPad, but I believe she was getting a little impatient with how long it was taking her. Think she learned a valuable lesson? Yep.
She learned that sometimes we have to adjust our wants. Another lesson she learned was that it’s important to hold on to our money so we can use it to splurge on bigger purchases.
Giving
The best way to teach kids about money through giving is to help them figure out a way to give to a cause important to them. Also, they can learn to give to their church by giving ten percent of their earned money.
If your child loves animals, maybe they would be interested in giving to an animal shelter. Maybe your child is particularly moved when they see a homeless person. Perhaps they can save their money to make a donation to a food bank or homeless shelter.
We encourage our daughter to give to the church, but the possibilities here are endless. Giving their money away to important causes may even encourage them to fundraise additional money for giving too.
When talking to teenagers about money, you’ll quickly learn that many believe they are experts on the topic. As teens, they understand you go to work to earn money and that it takes money to pay bills and buy things. Most teens also know that saving money and donating to causes, and those less fortunate is essential.
If your teen has figured all of that out, they’ are on the right track to managing their money.
Us adults know, though, there’s still a lot more for them to learn. As children mature and start making their own money and spending decisions, the stakes get higher. That’s where we have to take our job as parents seriously. While your teen may think they know it all, becoming financially literate is a process.
Just like your child takes math, history, science, and language arts classes at school, there are essential concepts your teen needs to master about money.
Ten Money Lessons for Teens
1. Needs vs. Wants
Your teen may think they need the latest smartphone, video game, or even a car. And be prepared for a well thought out rationale if you question why they think it’s a need.
While your teen may have some good reasons to call something a need, make sure you are firm and give examples when discussing the difference between needs and wants.
A smartphone might be a need, but the latest smartphone is a want.
Without a new video game, they might miss playing with their friends online, but it’s still a want, not a need.
It might help everyone if your teen can drive to school or work, but in many cases, an extra car is wanted more than it’s needed.
We don’t want to send a message to our children that their wants don’t matter, though. If they budget for their needs and have an emergency fund in case something unexpected happens, they can set up savings accounts (also known as “sinking funds”) for their wants.
Practicing delayed gratification by resisting the urge to buy things on a whim will help prevent them from going into debt in the future.
2. Spend Less Than You Earn, Save The Difference
Your teen understands negative numbers from math class, so it shouldn’t be hard to transfer that to money. When you consistently spend more than you make, you will end up with a negative account balance.
We need to teach our teens that if you spend every dollar coming in, you’ll never get ahead.
When you spend less than you earn, you can pay your bills, avoid credit card debt, save for the things you want, and even invest for your future.
Your teen’s goal should be to grow the gap.
The bigger the difference between what they earn and what they spend, the faster their savings will grow.
3. Track Expenses and Start a Budget
Whether your teen has a job, gets an allowance, or has money from gifts in an account, they should track what they spend and set up a simple budget.
Most teens are surprised to see where their money goes when they start tracking all of their spending. If your teen has a smartphone, they can use a free app like Wally or EveryDollar rather than saving receipts.
Once they have a better sense of how much they spend and in what categories, your teen can create a simple budget with the same money management apps.
In the budget, your teen should consider setting aside money to save, spend, and give. This helps teens put cash in the bank while still allowing them to spend responsibly. By creating a giving fund, they can donate to important causes without worrying about running out of money.
4. Save, But Start Investing Early
When your teen starts budgeting and works to grow the gap between earning and spending, they’ll have more money to save.
Consider introducing your teen to high-interest savings accounts for funding short-term financial goals. While the interest they earn on small account balances might not be significant, teach them how .01% and 2.0% annual percent yield (APY) savings accounts compare.
For example, you’ll earn $20 in interest if you have a balance of $1,000 in a 2.0% APY savings account for a year. The same $1,000 will only earn $.10 after a year in a .01% APY savings account. Teach your teen that you always want your money making more money!
Once teens have accumulated some savings, they should consider investing too. The longer their money is invested, the more wealth they will build over time – even if they deposit tiny amounts.
Introduce your teen to simple investing terms and help them open an investment account. At this point, you want them to use the “set it and forget it” investing strategy knowing that this is money for long-term goals in the very distant future.
5. Use the Power of Compound Interest
Your teen now understands why they should use a high-interest savings account. After all, teens love money! Why should they settle for a local bank only giving a few pennies of interest when an online bank lets you earn dollars?
Now it’s time to show them the power of compound interest. When they invest money, and it starts making money, they’ll keep earning interest on top of interest. If they leave the money invested over several decades, they’ll see the “magic” or power of compounding – even if they never add more money to the initial investment.
6. Understand Gross vs. Net Pay
When your teen gets a job, they’ll count the days until their first paycheck. But the excitement of getting paid can turn to disappointment real fast.
When your teen calculates what their paycheck should be, they’ll likely multiply the hours worked by their hourly rate. But kids don’t realize, or they forget there are withholdings and deductions taken from earnings.
If you want to prevent your teen from being shocked by their first paycheck, make sure they understand gross vs. net pay.
Money will be withheld for federal income tax, Social Security tax, Medicare tax, and any applicable state or local income taxes. There may also be deductions for any retirement plans your teen may be eligible for through their employer.
Your teen should know they may receive a refund after filing a tax return if too much money has been withheld from their paychecks during the year. But they should get used to planning their budget on their net pay instead of the higher gross pay they anticipated.
7. Good vs. Bad Debt
Teens need to learn about different kinds of debt. While all liabilities need to be repaid as a part of every budget, one type of debt can move you forward while the other holds you back.
“Good debt” is money you borrow that helps you reach your goals. Student loans can be considered good debt if they help your child earn a degree leading to employment.
But the amount of good debt someone takes on can also be a real problem. The average student loan debt per person in 2019 is over $30,000.
Teens should consider all of their options before taking out massive student loans to fund their education. Is community college for two years an option? What about living at home or graduating from college in three years instead of four?
You want them to avoid “bad debt” at all costs. Bad debt usually carries high-interest rates and is often used to purchase our wants instead of needs. Swiping a credit card too often can put teens in a cycle of debt that’s hard to recover from.
8. Your Credit Score Matters
As young adults age, they may be able to open up credit cards. Even with small lines of credit, your teen can make mistakes such as making late payments, keeping high balances on their account, or only making minimum payments.
This can prevent them from paying off their debt and negatively impact their credit score. A cycle of financial problems results when credit card debt grows.
Teens need to understand that building a high credit score can save them money on costs, including car insurance or cell phone contracts. When your teen is ready to leave the nest for their own apartment, having a high credit score can increase their chances of approval on rental and loan agreements and may save them money on utilities.
Teach your teen that their credit score can be damaged quickly by irresponsibility. Also, consider talking to your kids about reviewing their credit report each year to make sure no one has opened an account in their name.
Tell your teen to watch out for sites that want you to pay money to get your credit report. Everyone has access to a free copy of their credit report from each of the three credit bureau’s once a year from annualcreditreport.com
9. Big Loans Can Really Affect Your Life
Teens can be faced with adult-level decisions when it comes to taking out large sums of money for things like cars and college. Before they earn a steady paycheck, they can be thousands (or tens of thousands) of dollars in debt without understanding how long or difficult it will be to pay the money back.
A car might only cost $10K to them – or a few hundred dollars a month. But young adults forget that’s only one expense they’ll have as they become more independent.
When teens consider college loans, they’re thinking about their first “real” job and how big their paychecks will be. They may not realize they could be paying back loans for decades – even if they have good jobs.
Teens considering big loans need to use student loan calculators and look at loan amounts, terms, and interest rates to better understand the debt they want to take on.
If they’ve already tracked expenses and started using a budget, have them project all of the expenses they could have as a young adult and compare it to their net pay from a career that interests them. When you add in a student loan payment, the idea of taking out a big loan may not seem like such a smart decision.
10. You Can Be an Entrepreneur Without Taking on Much Debt
Some teens are natural entrepreneurs and have terrific ideas for starting small businesses. But they may spend time online trying to figure out how to grow their business – including spending too much money to get their business started.
You don’t want to dampen your child’s enthusiasm by only talking about money. But you also don’t want your teen (or yourself) to take on too much debt before you know that they’ll stick with the business. And that it will be profitable.
Help your teen figure out ways to market their business, get the equipment they need and find customers for as little money as possible. This will also help them make money faster because they won’t have a debt to pay off.
If their business takes off, they can put their profits back into their company to help it grow. Or they can find other low-cost options to help scale their business.
Helping Your Teens Build A Bright Financial Future
Teaching teens about money is a process. Some of the lessons work well with younger teens, while others won’t be appropriate until after they get their first job or graduate from high school.
Tim Connolly 