Learning about managing money is an essential skill for teenagers and parents are vital in shaping the money management skills of their children.
As teenagers begin to reach adulthood, they can face many challenging decisions. That’s why it’s essential to begin as early as possible to prepare your kids for personal finance management.
Let’ dive deeper and look at the top money management skills parents should teach their teens today.
1. Teach and Give Them Responsibility
Why aren’t the majority of young people responsible with money?
Before we can talk about all the other areas of financial education for teens, we need to first answer this question.
The answer is quite simple.
Teenagers who have the freedom to fully manage their own money independently are certain to learn a few valuable life lessons along the way. They get to understand more about the fundamentals of money and what it takes to earn it.
A major benefit here is that it helps stop them from spending more than they can afford. This is one of the worst problems that lead to money mismanagement.
Secondly, they can learn how to prepare for unplanned expenses better. Even more importantly, they also get to learn how to avoid these in the first place. All of these skills are vital in managing personal finances.
To effectively teach responsibility in teenagers, parents should:
Learn how to motivate teens
Develop responsibility cues to instill good habits
Be a good role model of responsibility
2. Show Them How to Manage Their Own Money
For many teens, having a set amount of their own money represents the first step toward a bigger world of personal finances and financial responsibility. That’s why it’s important to do this as early as you can.
By giving your teenager a fixed but regular amount of money, they’ll learn how to stay within a certain budget. Any mistakes or impulse purchases will cost them and no one else.
By following this approach, teens will always be reminded that no more money will come in until the next pocket money schedule.
3. Teach Family Budgeting
One of the best ways to teach financial responsibility to your teens is to ensure they set a certain budget for a particular need. In other words, you want to give them a set monthly budget for buying things they need for school and the like.
You then end up providing them the agreed sum ahead of time and allowing them to manage it on their own.
Although they may make the mistake of spending their money on frivolous purchases, they’ll end up realizing they won’t be given extra money to make up for it.
Eventually, your teenagers will start to realize how important it is to manage their personal finances better.
Here are some of the most common things teens spend money on that you should be aware of:
Fast food
Smartphones and apps
Trendy apparel and cosmetics
Spring break trips
Video games and consoles
Concert tickets
Expensive outings
Online shopping
4. Set a Good Example
Children often copy the actions of their parents in many aspects of life. Sometimes they do it consciously and sometimes they don’t. The same thing can be said when it comes to financial management.
As parents, it is important to show your teenagers how crucial money management skills are by setting a good example. Show them that if they want to buy something, they need to save up for it.
In this way, your children will learn the right way of managing finances by mimicking your behavior.
Whenever you make a good financial decision for the whole household, you should make sure that you inform your teenagers about it as well. In this way, they’ll feel more involved with the financial aspect of the family.
5. Help Them Save
Many people who haven’t been especially good at saving money during their teenage years have found themselves saving money to buy something at one point.
However, impulsive savings to purchase a new gaming console or a pair of sneakers may not automatically lead to smart money management choices later.
That is why you need to ensure your teens remember that saving money isn’t temporary but actually a way of life.
In this way, they’ll settle into the simple concept of only purchasing things that they can realistically afford. This simple premise is unfortunately difficult to bring into fruition in many individuals.
Regardless, you have to work on your teens and make sure that they understand this.
You want them to be equipped with the money management skills that can help them provide for themselves or their family one day.
You may even end up getting them to chip in to the fund that goes to their college education if you educate them on finance management early on.
6. Set Up Their Own Bank Accounts
You can start by opening a savings account for future goals and a checking account for daily spending. To get the best balance of independence and supervision, you can set up a teen checking account that gives you joint holder status.
With this setup, you can still gain full access to the account while allowing your teenager to manage and monitor it online or through a smartphone. You can then give them their own debit card associated with the checking account.
Apart from reducing the need to bring cash and having a record of where the money is spent, debit cards have other benefits. They are as convenient as credit cards while allowing parents to keep tabs on their teens’ spending.
7. Teach Them Insurance Basics
If your teen is already allowed to drive, you can start by teaching them about car insurance.
Explain its purpose and the importance of having such coverage at all times.
Review the policy with them, giving special attention to deductibles. This is a concept that’s also helpful when dealing with other types of coverage such as health and homeowners insurance.
You can even tell them that they’ll be responsible for helping pay for any deductibles that are a result of accidents they cause. With that in mind, your teens should hopefully grasp the concept of insurance and be more cautious moving forward.
8. Let Them Get a Job
Part-time work can be great for teaching teenagers about time management when balancing school and work.
Below are some of the most popular part-time jobs for teenagers:
Front desk receptionist
Smoothie shop cashier
Retail sales associate
Fast food server
Grocery store stocker
Lifeguard
Coffee barista
Movie theater worker
Babysitter
Dog walker
9. Teach Them How to Pay Bills
Once you have given your teenagers their own allowance to cover expenses you normally pay for and they have their own job and checking account, you can help expand their financial skills by teaching them how to pay bills.
This is one of the top money management skills to learn because many young people grow up not knowing about these things.
Consider showing them a sample budget when they have their own place. This can be good practice to help them understand about electricity, water, rent, and other types of bills that they don’t have right now.
10. Show Them How to Invest Money
A part of money management should also include how to save up and invest their money. You should teach your teens how to save at least 10% of their money in short-term and long-term savings accounts.
You can even consider teaching them to start with a 401k. Doing so can truly set them ahead of the rest once they decide to move out on their own.
These are a few ways that teenagers can invest:
Buying shares of stock in a company
Investing in a low-cost fund
Opening a Roth IRA
Opening a high-yield savings account
Starting a small business
11. Teach Them the Basics of How Credit Works
By the time teens are college aged they may find themselves eligible for credit cards in their own name. By teaching your teens how credit card interest works, they’ll be able to look past these offers and see that these deals aren’t beneficial to them long term.
Teaching older teens to build credit responsibly over time using options like a secured credit card can be a good way to gain credit skills without the risk of excessive debt.
12. Help Teenagers Learn to Comparison Shop
Kids as young as those in elementary school can grasp the basics of comparison shopping.
With that said, you can let your teens see you create a shopping list and look at sales so they can note where certain things cost less.
Take your teenagers grocery shopping with you and show them how you compare brands so you can buy more with your money.
When your teen wants to buy something with their allowance, show them how comparison shopping works so they can get the most for their money.
13. Teach Them the Importance of Credit Scores
Teenagers are already used to being graded. From SATs to their report cards, teens know well how numbers are used to represent their responsibilities and accomplishments.
The same can be said with a credit score, and although many teens can’t do much about it, you can help lay the foundation for building one into adulthood. Teaching your teens the concept of how credit scores work and the best practices can prepare them when they begin building their own credit history.
Here are some of the main reasons why having a good credit score is important:
Auto and housing loans require having good credit
Credit checks are often necessary for employment and housing rental
Business loans require good credit
14. Teach Them That Freedom Is Closely Linked to Their Level of Debt
A common issue faced by many young adults today is the debt accumulated by being drawn into enticing deals, such as:
No payments for twelve months
Zero-down financing
Buy-Now, Pay-Later financing
Most of the time, young people are easily deceived by how easy credit can be to get and the instant gratification of buying something without taking the money out of their own pocket.
Eventually, they can end up paying more for the cost of the items in the long run.
That is why it is important to teach your teens to focus on the cash flow impact of major purchases. You want them to learn how to avoid recurring financial commitments as much as possible.
15. Teach Them to Plant a Retirement Seed
This may not be one of the main things on their minds right now, but helping teens understand and look forward to saving even a modest amount of money can have a huge impact on their future.
The earlier teenagers can understand that retirement is the largest expense they’ll ever save for, the better off they are going to be. Being teens, they still have time on their side.
The power provided by compound earnings means that they can have more money the earlier they begin saving. If your teen is already earning income, consider opening a Roth IRA.
Helping make them an early start can make a huge difference, with early savers typically having twice as much saved by age 65.
Conclusion
As you may have noticed, educating your teens about personal finances isn’t something you can give them a crash course in. Rather, this has to be a long-term effort on your end, particularly once they transition towards adulthood.
Additionally, talking about these things isn’t enough; you should also set a good example for them. Let your teens see what good personal finances look like in practice.
Teaching your teenagers money management skills early on can help prepare them financially for their own future.