How to Teach Your Teenager About Money

As a parent, watching your child grow into adulthood is a huge milestone. But there’s one area where you can really set them up for success – their financial knowledge. Teaching your teenager about money isn't just about giving them allowance; it’s about equipping them with the skills and understanding they’ll need to make smart financial decisions throughout their lives.

January 28th, 2021 marks a good time to start this crucial conversation. Let's explore how you can effectively guide your teenager towards financial literacy.

1. Start Early – It's Never Too Soon

While it might seem premature, introducing basic concepts like saving and spending before they get their first job is beneficial. Even a small allowance, tied to simple chores, can be a fantastic starting point. Discuss the value of money and the difference between wants and needs.

2. Open Communication is Key

Talk About Your Own Finances (Appropriately): Share (age-appropriate) details about your own budgeting, saving, and investing. This normalizes financial discussions and demonstrates a practical approach. Don’t overload them with complex details, but let them see you making financial choices.
Be Honest and Transparent: When things go wrong (and they inevitably will!), use it as a learning opportunity. Don't sugarcoat mistakes; explain why they happened and what could have been done differently.
Ask Them Questions: Gauge their understanding. “How do you think you should spend this money?” “What are you saving for?” This helps you identify areas where they need more guidance.

3. Setting Financial Goals

Short-Term Goals: Encourage them to save for something they genuinely want – a new phone, concert tickets, or a specific game. This teaches delayed gratification and the value of working towards a goal.
Long-Term Goals: Discuss bigger ambitions, like saving for college or a car. Help them understand the long-term implications of saving and investing.

4. Budgeting Basics

Create a Simple Budget: Help them track their income and expenses. There are plenty of apps and spreadsheets designed for teenagers to help with this.
The 50/30/20 Rule: Introduce this popular rule – 50% for needs, 30% for wants, and 20% for savings and debt repayment. It’s a good starting point for understanding proportions.

5. Understanding Credit & Debt

Explain Credit Cards: Discuss how credit cards work, the importance of paying on time, and the dangers of accruing debt. Consider a secured credit card if they're ready for one.
Interest Rates: Explain how interest rates work and how they impact the cost of borrowing.
Debt vs. Credit: Help them understand the difference between good debt (like a student loan) and bad debt (like impulse purchases).

6. Resources to Utilize

Online Resources: Many websites and apps offer financial literacy tools for teenagers, such as NerdWallet, Practical Money Skills, and Mint.
Financial Education Programs: Check if your local schools or community centers offer financial literacy programs.

Final Thoughts

Teaching your teenager about money is a marathon, not a sprint. Be patient, supportive, and willing to adapt your approach as they grow and learn. By equipping them with a solid financial foundation, you'll be giving them a huge advantage in achieving their future goals and building a secure financial future.