Financial literacy might not be the most exciting topic for teens, but it’s a lesson worth teaching if you want to set them up for success.
As your children’s role model, you play a crucial role in guiding them toward responsible money management. New to the world of personal finance, your teens are vulnerable to making less-than-ideal decisions, such as prioritizing wants and neglecting to save. Without your guidance, they could find themselves facing financial instability when they transition into adulthood.
To ensure they make smart financial choices now and in the future, we’ve compiled a few tips for teaching teens about money.
Practical Tips for Teaching Teens About Money
Before your teens venture into the real world, remember to impart the valuable skill of financial management—how to earn, save, and spend money responsibly. Discover how to teach teenagers about money with these techniques:
Let Them Make Their Own Money
There’s nothing wrong with giving your teens money. However, letting them earn their own offers a more valuable learning opportunity. Whether earned through dog-walking, babysitting, or lawn-mowing, money your kids make themselves instills a sense of financial responsibility and self-sufficiency. Furthermore, it shows them that cash is a limited resource, discouraging them from wasteful spending.
Teach Them About the Value of Budgeting
Seven in ten of Generation Z are clueless when it comes to how much they should spend versus how much they should save. To set up your teens for financial success, it’s crucial to teach them the art of money management.
Start by pooling your children’s monthly earnings, be it from part-time work, chores, or allowances. Then, work together to create a budget, making sure to discuss the importance of meeting their needs first, and catering to their wants only if they have extra money. By imparting the skill of budget-setting, you enable your teens to take better control of their finances.
Encourage Them to Start Saving
When teaching teens about money, convincing them to save can be a challenge as they may not understand its benefits. However, cultivating this skill remains essential, as it empowers your children to lay the foundation for a secure future.
To encourage your kids to save, challenge them to save for a big-ticket item—whether a brand-new iPhone, a car, or concert tickets. This approach not only motivates them to hold onto their money but also serves as a lesson on delayed gratification.
Set Up Bank Accounts
Since your teenagers’ old piggy banks probably aren’t big enough to store their money, it’s time to open real bank accounts. Not only does it offer a safer way of storing funds, but it also affords your teens the ability to closely monitor their finances. Witnessing the growth of their savings in real-time serves as a strong motivator, reinforcing their money management habits.
Grant Them the Freedom to Spend Their Money
Micromanaging your children’s expenditures isn’t the most effective approach for teaching teens about money. Rather than monitoring their every spend, simply encourage them to make wise spending decisions, while giving them the freedom to use their money as they deem fit.
If they make mistakes, such as blowing all of their money on gadgets, consider it as a teachable moment. At their age, they’re still allowed to mess up, as these errors are unlikely to result in major consequences.
Discuss the Responsibility That Comes with Debt
Teaching teens about money should include the four-letter word that many of us are all too familiar with—debt, specifically the responsibility it comes with. While not all debt is bad, your teens need to understand that it shouldn’t be taken lightly. Covering this concept now can help them avoid financial pitfalls later in life.
Finance for teens shouldn’t be complex, so use concepts they can easily grasp. For instance, you could draw from personal experience, discussing how you swipe your credit card only if you’re confident about settling the bill in full.
Give Them the Lowdown on Loans
When your teens enter adulthood, they’ll likely encounter situations where they will need to borrow money. So, while on the topic of debt, it’s important to touch on the topic of loans.
Highlight the fact that loans, like other forms of debt, also come with the commitment to repay them. However, emphasize that they can also be a valuable tool in certain situations. For example, obtaining a personal loan to cover medical expenses is acceptable, but borrowing money to buy a new iPhone isn’t a wise choice. Through this approach, you can instill a sense of responsibility while illustrating the nuanced nature of debt.
Your discussion should also serve as a caution not to fall victim to predatory lenders—institutions with unfair offers, such as payday loans. By doing so, you safeguard your children’s financial well-being when they eventually enter the world of borrowing.
Establish Credit-Building Habits
Fortify your teen’s financial situation by teaching them how to build credit at 18 or younger—they’ll thank you later.
Start by educating them about the basics of credit—what it is, how it works, and why they should aim for an 800 FICO score. Once they’ve grasped these concepts, guide your teens through the process of establishing their credit history, which can help them secure favorable loan terms in the future.
More Tips for Teaching Teens About Money
To ensure you succeed in teaching teens about money, consider these additional tips:
Set an Example
In teaching your kids about money, understand that their habits will likely be modeled after yours. If you live beyond your means, they’ll likely do the same. In contrast, good practices such as saving can positively influence your children’s financial decisions.
Many parents don’t know how to talk to teenage kids about money, so they keep them in the dark in times of financial difficulty. However, open conversations can actually help your children gain a realistic understanding of financial matters. Plus, even if you aren’t entirely proud of your decisions, discussing them can be a way to teach your children about the risks of poor money management.
Secure Your Children’s Future with Payment1
Teaching teens about money is an essential step for setting them on the path to financial success. From encouraging self-sufficiency to establishing good credit at a young age, your guidance during this time can significantly impact their financial situation in the future.
As a parent, your commitment to your children extends beyond imparting money management tips. It involves actively supporting them on their path to success. At Payment 1, our personal loans are invaluable tools, ensuring you have the means to provide your children with the support they need. Whether it’s buying your children’s textbooks or securing a car for their commute to school, our tailored loans empower you to take an active role in shaping your children’s future.
Connect with our team today to explore your options.