It's never too early for teens to start learning about the financial side of life. Handling money responsibly is a skill that has a lifelong impact. The teenage years provide a chance for parents to instill healthy habits in their kids to give financial wellness a kickstart.
1. Help Develop a Savings Mindset
Most teens haven't managed money before; they've only spent it. One of your goals as a parent is to get them to be a better saver – and not to see money as something that one spends until it is gone.
Delaying gratification when you have money at hand is a challenging exercise in self-control. For a lot of teens, buying things, like gaming merchandise or the latest fashions, is a temptation that's hard to resist. Let your teen know you understand that it's not easy, but that holding back on impulse purchases pays off later in the form of financial well-being.
To help illustrate how savings accumulate over time, provide a visual. The American Institute of Certified Public Accountants (AICPA) has great calculators to demonstrate how savings add up over time and how long one may need to save for a large purchase.
Talk to your teen about developing realistic savings goals by planning and saving for large purchases by setting aside a percentage of anything they earn or acquire. Get them to start their savings nest egg now and have an emergency fund for later.
Make sure you discuss interest rates, compound interest and how interest works when it comes to savings.
Read More: How to Set Financial Goals for Teens
2. Open a Joint Savings Account
Give your teen a place to set aside funds from gifts, allowance or anything earned. This is the perfect opportunity to talk about how savings and checking accounts work, what types of fees a bank may charge, and how the money saved accrues interest.
Most banks and credit unions will have a savings option with no minimum balance or account maintenance fees for minors. Although you'll want to let your teen know that those fees and minimums exist.
You can sign up at a local bank or credit union near home or go for an all-online option like Chime. However, Chime does not offer joint accounts or accounts for minors, so a younger teen wouldn't get the actual experience of managing the money directly. But it's a good option to consider when your child turns 18.
The teenage years provide a chance for parents to instill healthy habits in their kids to give financial wellness a kickstart.
3. Sign Up for a Savings App
There are multiple interactive ways for a teen to experience financial life right through their phone or tablet. Banking apps help users stay on top of their accounts and expenses by bringing money activities and accounts onto one dashboard. Most apps also offer early warnings for overdrafts or shortages to alert a customer before fees strike.
Most apps are available to teens 18 and over and don't offer joint accounts. But they are a great learning tools for older teens.
- Mint: This app makes your teen's financial world accessible and interconnected, even offering 24/7 access to credit scores.
- PNC Virtual Wallet: This option is centered around a PNC savings or checking account. Low Cash Mode protects customers from overdraft. PNC offers a student version for customers aged 16 and up.
- Acorns: This microsaving app brings investing into the mix. Acorns Early is an app that allows any child under age 17 to enroll.
The older the teen and the further along in their financial literacy they are, the more features you'll be able to take advantage of as a learning tool.
Read More: Importance of Saving and Budgeting for Teens
4. Boast the Benefits of Budgeting
The word "budget" alone doesn't strike joy in many of us, but the rewards of being a good budgeter can bring a whole lot of happiness. That is what your teen needs to learn. Just talking about budgeting won't do it. You need to show them how and why it is essential not to spend more than you earn.
Whether you go the old-school route of a ledger book, take advantage of a budgeting app like Mint or get an interactive worksheet from a trusted source, going through the motions of putting together a real-life budget is a learning experience in itself.
Start by outlining the family's income and expenses to show your teenager how budgeting works for the household. Then, go through the same worksheet or app again, this time using your teen's financial information.
This is an excellent opportunity to break down a paycheck: Show your teen what automatically comes out of a salary and talk through the ideas of payroll tax, social security and retirement plans. From there, you can talk about guidelines, such as the 50/20/30 rule of thumb, for dividing take-home pay into needs, savings and debts, and wants.
Read More: Budgeting Projects for Teens
5. Deliver the Low-Down on Credit and Debit
If it weren't difficult to use credit wisely, America's total credit card debt wouldn't be over $800 billion in any given year. Credit is difficult to manage, especially when the concept is new – but not if you go into it armed with knowledge and a plan.
Rather than have your teen blindsided by credit card debt they weren't prepared for, explain the additional cost of an item when purchased, with interest, on credit. Be sure they know that cash advances are hit with higher interest than purchases. Discuss high-interest credit cards, as well as lower cost financing, such as a credit union cards or government loans, that might provide a better option.
Teens under 18 need a cosigner to apply for their own credit card, but you may be able to add them as an authorized user at a younger age, depending on the bank. A great option now available for younger teens is a debit card. Chase offers one with no monthly fees that allows teens to practice managing money.
This conversation opens the door to talk about credit scores and credit history, too.
Read More: How to Build Your Credit for High School Kids
6. Don't Wait to Talk About Borrowing
Too many college students have found out about loan debt the hard way. EducationData.org reports student loan debt at a towering $1.73 trillion, with more than 20 percent of borrowers delinquent or in forbearance.
Start the conversation early about how financial aid works and other borrowing basics. Discuss how car loans, student loans and mortgages work. Talk about where cosigners fit in and how teenagers can begin building credit when it's time to secure their own loan.
Explain how credit scores and credit history factor into the equation and why building credit is essential for loan eligibility in the future. Knowing how loans work is a game-changer for many college-bound teens.
Read More: How to Get a Loan if You Are Under 18
7. Find Learning Opportunities in Daily Life
There is a lot of information to talk through when it comes to money matters and management. And it's all important. Parents can find day-to-day ways for teens to get hands-on experience handling money to reinforce the ideas and introduce good habits.
- Comparison shopping: Use weekly grocery store trips as a chance to talk about savings. Comparing items and planning ahead adds up to monthly savings.
- Give your teen small household expenses to cover: If your teen has subscription services for entertainment such as gaming, streaming, music or anything else that bills monthly, give them the responsibility of paying for it.
- Make an allowance last: If you give an allowance, use it as a chance to try out a budget. Have your child plan out the month and stick to it in real life.
- Give them a parental loan: Put the borrowing lessons to work by giving your teen a small loan for an important purchase and setting up payment dates.
Any real-world experience your teenager gets will help them see how money management has a place in their life.
Talk about 401(k) plans, IRA accounts and what a pension is. If your teen has a job, talk together about which options might already be available to them now.
8. Talk Money with Your Teen
Opening the door to talk about money lets your teen know that this is a topic they are ready for and that you value. Engaging in a dialogue about money, credit, savings, budgeting – and how it all fits into their future – is a critical step in helping your teen develop financial knowledge.
Give your teen insight on what you've learned, share how you manage money and allow them plenty of opportunities to ask questions. Transparency and openness go a long way in showing that managing money is part of everyday life – and something that starts long before adulthood.
- Investor.gov: Compound Interest Calculator
- Investor.gov: Youth Resources
- National Endowment for Financial Education: Money and Milestones
- Youth.gov - financial literacy
- USA.gov: Credit Reports and Scores
- Intuit Mint Life: Teenage Money Management
- 121 Financial Credit Union: 15 Money Management Skills Parents Should Teach Their Teens
- 360 Degrees of Financial Literacy: Should You Pay Your Kids an Allowance?
- Bank of America: Preparing Your Child to Make Better Borrowing Decisions
- ConsumerFinance.gov: Consumer Financial Protection Bureau
- Consumer.gov: Your Paycheck
- Department of Labor: Top 10 Ways to Prep for Retirement
- Boys and Girls Club of America: 5 Tips for Teens to Avoid Debt
- CreditUnion.gov: Credit Union and Bank Interest Rate Comparison
Melissa is a writer and editor from Chicago, with a background in small business ownership. After selling her business, she moved into marketing for nonprofits and now manages volunteers at a large medical association. She is a writing and editing contractor and contributed to dozens of blogs and websites.