One of the most important skills we can instill in teenagers is to manage money responsibly. If we want our youth to develop into successful adults, they need to learn fundamental concepts, such as saving, how credit works, budgeting, and consumer rights. Many high schools do not cover this material, and even if they do, they don’t always make it relevant to teens so that they retain the information. Taking time to offer financial instruction can help your teen become self-sufficient, self-reliant, and independent.

Following are 10 tips to raise a financially literate teen:

Set the example. Take a moment to consider what your financial habits demonstrate to your teenagers. How do you spend, borrow, save, invest, and share your money? You are an important role model, and your teenagers learn a lot just through observation. Credit card debt and impulse buys do not go unnoticed by teenagers and can promote the false concept that there is an endless supply of money. It’s a great idea to discuss your financial decisions as you shop and pay bills, because you are providing concrete, real-world examples for your teens.

Discuss financial values and priorities. Everyone has their own values and priorities for how they allocate their resources. Perhaps you value eating out with friends or family so you prioritize a restaurant line item in your budget. Maybe taking a big vacation every year is important to you so you prioritize a savings account for upcoming trips. Having open conversations with your children about these ideas can encourage teens to think about the meaning of money, the challenge of balancing priorities, and the importance of saving for what they truly value.

Discuss needs versus wants. One of the most common mistakes Americans make financially is mistaking “wants” for “needs.” It’s a great idea to talk to your teen about common items youth love and ask them to categorize them into wants vs. needs. Your teen may think they need the latest smartphone, but in reality, they may need a cell phone but the most advanced smartphone is a want. Your teen might think they need a car, but in reality, they only need access to transportation and owning a car is a want. Discuss how it’s a good idea to meet needs before you consider spending on wants. Teaching this concept will introduce the idea of delayed gratification – where you purchase needs now and save up for wants later. By teaching them to resist the urge to buy things on a whim, you will help prevent them from going into debt in the future.

Have open conversations about large expenses. If you never discuss the cost of important living expenses, teens will enter adulthood surprised at the cost of living, which increases the likelihood of them returning home to live with you! Teens need to know what big expenses they should expect, such as rent or mortgage payments, food costs, car payments, vacations and the less visible expenses, such as insurance, medical costs and utilities like gas and electricity. You can help them understand these concepts further by making them part of the conversation about different options in living costs. For example, you could discuss how much the basic package for cable TV costs versus premium, and how you’re balancing pros and cons and costs before making a decision.

Teach basic financial concepts. Teens must have a good grasp of basic financial fundamentals in order to make good money decisions later in life. They should be aware of financial terms, such as compound interest, credit score, gross versus net pay, and the different types of debt. If you don’t know how to teach these concepts, it might be helpful for you to read our previous blog, Debt 101 for Teens.

Emphasize savings. We need to teach our teens that if they spend every dollar coming in, they will never get ahead. Let your teen know that when they spend less than they earn, they will be able to pay their bills, avoid credit card debt, save for the things they want, and even invest for their future. Role model this behavior. For example, if you want a new couch or a vacation to the Caribbean, explain to your teen what you are doing to save for that dream. You should make it clear what you are sacrificing to achieve your financial goal and explain your choice to pay for it instead of using a credit card to charge it. This helps teenagers understand the time and effort required to save, the joy of achieving the goal, and the importance of avoiding debt.

Open banking accounts. Your teenager may already have a savings account, but teens also need to learn to manage a checking account. Using a debit card, making deposits, and monitoring balances are all key skills your teenager will need once off at college or employed. Opening banking accounts now, while your child is still at home, gives you plenty of opportunity to teach those skills and help them if they make a mistake. 

Teach budgeting. Show your teen how to write a plan with money goals. They need to learn the process of figuring out how much income they will receive, what their ongoing expenses are, and saving the remaining amount. Developing a budget isn’t a skill that adolescents will just understand – it must be taught, and budgeting is not a subject at school. Most teens are surprised to see where their money goes when they start tracking all of their spending. If your teen has a smartphone, there are multiple apps available for free that will help them record a budget and track their expenses. If you’re comfortable, share your own family budget with your teen and have them pay the bills with you. This will help teenagers understand how much mortgages, car loans, utilities, and insurance cost. They will also learn how to write checks, use online payments, and pay bills responsibly in an organized fashion.

Give hands-on experience. It’s important for teens to have hands-on experience managing money before they leave home. Ideally they will earn money from a part-time job, such as babysitting or mowing lawns, or an allowance. You might want to consider also giving them an amount for bigger-ticket needs, such as clothing or club dues, that you normally would have managed. When teens are given control of the money that is used for their expenses, they learn financial responsibility. Make sure the amount is enough to cover basic expenses plus a few fun things, but not so much that your kids can frivolously spend. Allow them to set up their budget (as explained above), pay their expenses when bills are due, and track their spending. Teens need the benefit of making their own decisions and living with the consequences. Nothing is a better teacher than real-life experience!

Allow mistakes. No matter how painful it is for a parent to watch, do not bail your teen out when they screw up. If they blow their allowance at the beginning of the month, then they can’t go out with friends at the end of the month. It’s a great life lesson! This is the time that teens can make small mistakes with parental support to learn these important skills before they’re out on their own and make huge mistakes that could have life altering affects. Blowing their allowance one month teaches a teenager some significant lessons about financial planning; whereas, not understanding money management when they’re on their own could lead to bankruptcy.

Final Thoughts…

As adults, we can forget that learning how to manage money properly is a skill to learn, but taking the time to teach your teen financial responsibility will reap great rewards for both of you as your child becomes a young adult.