Managing money doesn’t come intuitively. It’s learned by watching others do it and from first-hand experience. How parents talk about money and the choices they make with it send powerful messages to teenagers.
However, watching parents make good decisions isn’t enough. Teens want responsibility, and they want to be involved. Introducing purposeful discussions and expectations about money will launch your teen into adulthood with the experience and knowledge they need to protect their finances and avoid costly mistakes.
Whether your teen is managing money from a job or budgeting an allowance, developing good habits will help them make good decisions once they’re on their own. Here are ten hands-on ways you can help get them started:
Before your teen can manage money, they need to earn money. It can begin at home or with a first job. Consider paying your teen for doing extra housework. Encourage them to do yard work or pet care for neighbors. If they’re old enough, guide them into a part-time job. There’s a wide range of jobs available for teenagers, from internships to camp counselors, babysitters, and restaurant workers.
Once they’re earning, have your teen divide their money into dedicated amounts for saving, giving, and spending. The Consumer Financial Protection Bureau (CFPB) recommends saving at least 10% of each paycheck and teaching teens about payroll deductions. Another option is 70-20-10 budgeting. Under this strategy, 70% goes to needs and wants, 20% to savings, and 10% to donations.
Having money available to share, and being intentional and consistent with it, is rewarding for your teen and good for your community. Setting aside funds for giving, especially when your budget is tight, requires commitment and discipline. Donations don’t need to be large sums or given to large organizations.
A few dollars dropped into a collection box, supporting youth sports teams, refugees, the environment, or an animal shelter are great starts. Motivate your teen by encouraging them to give to organizations or causes they are passionate about.
Having a bank account gives teens the ability to manage their money independently while still receiving guidance from their parents. This offers benefits to both parents and kids, explains Matt Gromada, head of youth, family, and starter banking at Chase.
“First, it opens the door for important conversations and real-world scenarios about the basics of finance – from spending and saving to explaining interest and how it accrues,” Gromada says. “Second, it gives the child a sense of independence and freedom, providing the opportunity for real-life experiences and learning.”
If your child is earning a paycheck, direct deposit is a convenient option. The financial institution should be federally insured and offer online and mobile access, giving your teen the ability to check balances from their phone.
With money in the bank, your teen will need a way to access it. Debit cards draw down their account balances as they spend, and may be accepted in place of a credit card at the point of sale. They can be convenient but may come with fees and hefty penalties if the account is overdrawn.
Prepaid cards offer more safeguards but less real-life learning. The parent determines the amount available and preloads it onto the card. Purchases that exceed the available balance are not approved, but linked parent and teen apps allow parents to transfer money instantly when needed. They can be a reasonable solution for those who aren’t yet ready for a traditional debit card.
When choosing between a debit or a prepaid card, consider your child’s money skills and maturity, along with your needs and wants as their parent.
Learning to save money will help your teen prepare for everything from special purchases, to college, retirement, and emergencies. Develop a budget with them and show them the value of being frugal. Prioritize needs over wants.
The CFPB encourages teens to “save 10% of what you earn, and have at least three months’ worth of living expenses saved up in case of an emergency.”
Make a budget and discuss with your teen how much they can save. Ask them to think about what they’ll have to give up to meet their savings goals and why it’s worth it.
Modeling restraint with purchases also shows teens they are in control of their money and choices. In doing so, Varda Meyers Epstein, parenting expert and writer at Kars4Kids, advises to not tell a teenager that you “can’t afford” to buy something you really want, like a new cell phone or other expensive items.
“The phrase implies passivity and a lack of control over one’s finances,” Epstein says. “It makes more sense to say, ‘I prefer not to buy that phone because I’d rather put that money toward your college fund,’ or, ‘I don’t want to spend money on a phone right now,’ or, ‘If you can find it at a better price, I might consider it.’ The point is to show that you are in control and that you have choices and a way to use what you have, wisely.”
Paying for college may be one of your teen’s most essential financial goals. Having real conversations with them about the costs, how much you’ll be able to contribute as a family, and how much they’ll be responsible for on their own will help them understand the financial burden. They’ll benefit from saving early, making a plan, and seeking grants and scholarships. The less debt they get out of school with, the better.
The college costs calculator from the College Savings Plan Network, which advocates for tax-free state savings plans known as 529s, can help you understand what to expect.
“As long as you do it for long enough, you’re going to see really good returns,” says Jordan Lee, founder of Backer, an investment platform that makes it easy for friends and family to contribute to a child’s college account. “You never have to pay capital gains tax when you actually use the money, or on the growth of the fund over time.”
Lee also notes that it isn’t too late to start a 529 even when a student is in their teens. “Having four to seven years to build and invest a college account with help from family and friends should grow enough money for a student to cover a semester or year’s worth of tuition, or room and board, depending on the school they choose,” he says.
Compound interest can be a financial amplifier or a wealth-eroding foe. Teach your teen how it works, with tangible examples, so they understand its power. Compound interest is an excellent financial ally when it increases investments.
“If an 18-year-old invests only $37 a month and gets a 12% annual return, they will have over a million dollars by the age of 65!” says Matthew Robbs, founder of the website Smart Saving Advice. “If they wait ten years until the age of 28 and invest that same $37 at the same return, they will only have $300,000 at age 65.”
But racking up credit card and other high-interest debt can cause the same principle to work against them.
“Teaching young people this one important money management fact will allow them to save and invest for the future rather than wasting years paying back credit card debt for foolish decisions that they made,” Robb says.
Want to see how fast your money will grow? Sit down with your teen and experiment with different contribution amounts and interest rates using Personal Finance Insider’s compound interest calculator.
Teens must understand how credit cards work, even if they’re not getting one until college or later.
“Being aware and practicing good credit card habits like spending within your means and paying your balance on time and in full can help pave the way for major purchases and life moments since credit impacts future living arrangements, the ability to purchase a car, and even employment opportunities,” says Mary Hines Droesch, head of consumer and small business products at Bank of America.
Secured credit cards and adding your teen as an authorized user on your account can be ways to help them build credit with lower risk.
Prepare your teen for top-notch credit scores by teaching them how a credit score is calculated and why it matters.
Broadly, paying bills on time and in full, and avoiding big loans will give you more options and lower interest rates when seeking loans or credit cards. Credit scores can also have an impact on the rates you’re offered for insurance and even some job opportunities.
Talk with your teen about credit limits and credit utilization, and make sure they understand buying on credit means using borrowed money.
Modern teens are growing up in a digital world that’s vastly different from their parents and grandparents. Why not meet them there? Online tools and apps can make learning about finances easy and fun. For example, the platforms Acorns and Wealthsimple promote saving and investing spare change. Simplifi by Quicken allows you to set goals, track spending, and create budgets — a time-saving, one-stop app the company says will help you take control of your finances.
“Teens use their phones a lot,” says Julien Brault, CEO of the financial management app Hardbacon. “Why discourage that? Instead, using apps and tools available on their cell phones will help them be better equipped to manage their own finances.”
Financial institutions also have tools to help your teen get the most out of their money. For example, Chase autosave allows you to set and fund savings goals either as deposits are made or on your chosen schedule. Greenlight, which offers prepaid debit cards to families and comes with robust support, has dedicated content to improve your child’s financial literacy.
You don’t have to be a money expert to help your teen on their financial journey. Help is available through educational content from Jump$tart Coalition and the Federal Deposit Insurance Corporation’s Money Smart curriculum, which offers games and online lessons targeting specific age groups, including teens.
Speak openly with your children about finances, and set an example for them to follow. Include them in budgeting. Ask them to help pay for items they want. Follow sound principles. Through Mymoney.gov, the congressionally-chartered Financial Literacy and Education Commission offers advice on earning, saving, protecting, spending, and borrowing money. Demonstrate in your day-to-day decisions that you control where your money goes and what you spend it on.
“As in every other area of life, kids will pick up financial habits from their parents,” says Tanya Peterson, vice president of brand at Freedom Financial Network. “If parents argue about money, or spend like it’s going out of style, that’s what kids will pick up. On the other hand, if teens hear parents discussing, or acting on, how they can live within their means (even simple things like refilling water bottles versus buying individual drinks or cooking more meals at home), that’s what they’ll learn.”
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