Financial Literacy for Teens
Early high school years mark significant financial transitions as your kids become more independent, more capable, and legally able to work. They also mark the start of greater challenges as your kids are true teenagers. There’s a lot to learn and experience before they are ready to head off on their own. Your efforts to instill strong financial values can go a long way toward your broader parenting objectives, as you teach them how to make wise decisions in support of current enjoyment, future goals, and core family values.
Key Money Basics for Ages 14-16
- Balancing needs, wants, and values as teens encounter significant peer pressure.
- Managing greater financial decisions.
- Learning to plan, save and budget from personal earnings and allowance.
- Engaging in discussions about college, including financial expectations.
- Introduction to financial apps and banking functions, with parental oversight.
Beware of Peer Pressure at Its Peak
These can be trying times for you and your kids as peer pressure is at its peak. Keeping a rein on spending and life decisions will be some of your biggest challenges. Listen to your kids, talk to them in adult terms, and set good financial examples.
- When your kids make a request, don’t be dismissive. Listen sympathetically and discuss matters openly. Try to compromise where possible to avoid a cycle of conflict centered upon money. You can’t win every battle, and you don’t want to make every request into one.
- When you can’t agree to their request, explain why. Offer the positive attributes of your decisions and how they directly benefit your kids. Explain how your decisions relate to what matters most to your family. This might be saving for shared family activities, a college education, or helping those less fortunate.
- By now, your teens are being bombarded with targeted marketing. Focus on the importance of making sensible purchase decisions.
- Help your kids to understand that what they wear, drive, or do doesn’t define them as individuals. Focus on their unique gifts and talents and don’t forget to tell them how much you love them, unconditionally.
- If your kids still want to buy those name-brand goods, have them fund the difference. By making them pay the cost differential, they’ll learn about the cost premium attached to more expensive items.
Transition More Significant Spending Responsibilities
Now is when you need to ratchet up your kids’ spending responsibilities. There’s a lot to learn before graduation and it’s best achieved in stages. Responsibilities should include a mix of needs and wants, immediate items, and longer-term goals.
- Your kids have never had this much responsibility. They need your continued guidance.
- Encourage wise purchase decisions based upon price, value, quality, needs versus wants, what you can afford, and family values.
- Try to focus on the positives, encouraging progress and actions toward important goals.
- Establish ground-rule expectations, offer suggestions, and schedule regular check-ins, without telling your kids what to do.
- Help them to monitor spending and purchases digitally using a budgeting app and online banking functions. Most allow your teen to define spending categories and amounts, provide real-time data, and send weekly electronic updates.
- Include responsibilities for both needs and wants.
- Needs might include clothing, school supplies, snack money, etc.
- Wants might include eating out with friends, going to the movies, music, or apps.
- It’s time to expand the clothing budget and transition the bulk of purchase decisions to your kids (although still with your input and/or restrictions).
- Some parents establish a back-to-school budget. Encourage your child to shop on sales-tax free days where available.
- Alternatively, encourage your kids to add to their wardrobe throughout the year, funding purchases from their recurring allowance.
- Discuss larger and longer-term spending goals together. Examples might include electronics, summer experiences or travel, and other activities.
- Don’t allow your teen to have a debit or credit card just yet. However, authorize a prepaid card for your teen if they don’t already have one. This affords greater independence and a more convenient way to pay as your teen’s purchase responsibilities expand. It also allows you real-time oversight.
- Some banks and apps offer the opportunity to round up purchases to the nearest dollar and either invest or save the spare change.
- One of the best budgeting lessons is to avoid bailouts if your kids run out of money.
- If their spending isn’t aligning with their budget, help your children to figure out why.
- Encourage them to work to earn the additional money they need.
- Suggest free activities when allowance money is spent too quickly.
- Consider extending one or two loans a year for significant items. This helps your kids to learn the impact of debt on their lifestyle and the advantages of being debt-free.
Stretch the Allowance to Monthly Payments
By high school, a monthly allowance is recommended. This is a big transition that requires more planning and budgeting. 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.
- While there isn’t a precise calculation to decide how much allowance to pay, consider the following factors:
- What things cost.
- Your children’s individual abilities to successfully and sensibly manage their money.
- The need for a progressive approach that prepares your kids for college and beyond, mirroring a budget that’s realistic for them to eventually afford on their own.
- Whether your children have income from part-time jobs.
- Your family’s values and beliefs.
- The amount of allowance you decide upon should be enough to cover:
- All purchase needs for which your kids are now responsible.
- Some amount for discretionary spending.
- Some amount for savings and longer-term financial goals.
- Some amount for giving, as relevant to family values.
- Allowance should be paid directly into your teen’s bank account.
- Use a financial app to develop a budget together. This will guide both a realistic amount of allowance, and will also help your kids to outline wise saving and spending priorities. Explore technology resources together to help them monitor their budget goals and progress.
- Avoid bailouts. If your children run out of money, sit down with them to work out where budget expectations and reality did not conform.
- Encourage them to earn what they need, or to focus on free activities. You can also consider offering a loan.
- As your kids get older, they’re exposed to more things, both good and bad. It’s important for you to stay engaged financially, socially and personally. If spending concerns emerge, try an alternate approach where you hold more of the purse strings, while still letting your kids participate in financial decisions and learning experiences in a more limited way.
Consider Part-Time Employment or Volunteering
Starting at 14, your kids are legally able to work part-time. A part-time job helps your children to understand the value of working, earning, and the value of money. Finding the right balance of school work, employment, and other activities is key.
- Work experiences help kids:
- Experience an industry or work setting they might consider for a career.
- Learn time management and vocational skills.
- Understand work responsibilities.
- Learn how to speak, write, act, and dress professionally.
- Develop self-esteem and confidence.
- Prevent them becoming bored, which can lead to negative influences in their lives.
- While there are many benefits to your children working, the advantages should always be weighed against school and other commitments.
- Some children can successfully balance schoolwork, extra-curricular activities, and a job.
- Others may find this too challenging. If working during the school year is too much, your children should consider summer jobs e.g., a lifeguard at the local pool, or a camp counselor
- If you don’t believe working is appropriate, consider getting your kids involved in volunteer positions that will provide similar learning experiences and a greater sense of responsibility. Positions are often available in hospitals, museums, animal shelters, religious and other organizations.
- Part of working is paying taxes. Take the time to explain why taxes are withheld, the purpose they serve, and how tax rates gradually increase as earnings rise.
- One of the best allocations for earned income is college savings. Your kids gain a vested interest in their education and an appreciation of what it takes to pay for college.
- This is a vital discussion at this juncture if you aren’t planning to or are unable to pay for college tuition.
- Start a conversation about the differences in costs between attending university versus community college, in-state and out-of-state tuition costs, and how your kids’ future earning potential will impact their ability to repay any foreseen student debt.
Discuss Saving for College
Saving for shorter-term rewards remains important, but it’s time to begin saving toward more significant financial expenses. This includes longer-term savings for high school wishes such as a car or a school travel experience and, of course, college.
- College requires years of savings. Be sure to discuss college savings with your kids, developing realistic expectations and saving goals for their participation.
- We always recommend encouraging your kids to save for college, even if you’re planning to cover the expense. It’s a valuable financial lesson and it sets a goal toward academic achievement.
- If you’re not planning to pay for all of college, it’s time to initiate discussions so your kids know how to plan and save accordingly.
- Help your kids to understand the cost of college.
- Discuss the amount, if any, you are willing or able to pay.
- Discuss ways your kids can cover their educational costs by working, saving, applying for scholarships, and exploring cheaper college options.
- Think carefully about the expectations you want to set for a car. If you intend to allow your kids to have a car, consider and discuss:
- Who will pay for the car?
- Who will pay for gas, maintenance, and insurance?
- Still focus on smaller goals as well. Your kids should still be setting aside allowance money and/or earnings towards expenses that don’t occur every month.
- When your kids express wants, encourage them to save toward their goals.
- Consider setting specific saving goals e.g., 10%-30% of your kids’ allowance. This is a personal choice. The right amount depends upon your family goals, financial abilities, and your participation in helping your kids achieve their saving goals.
- Apps like Acorns do double duty, offering an easy way to save as well as an introduction to investing. Some financial institutions offer similar services, directing the spare change to your teen’s savings account instead of an investment account.
Allow More Autonomy with Co-Monitoring
Your kids should already have a bank account. It’s time for them to begin managing their monthly earnings and allowance. Expand discussions to include banking basics like check writing and monitoring balances, relevant to needs and goals.
- Your teen doesn’t yet need their own ATM or debit card attached to their account. By now, however, some form of card payment is required for daily spending needs. Authorize a pre-loaded card for your teen if you haven’t already done so.
- Have your kids balance their own accounts.
- Keep a pulse on your teen’s bank balance, saving, and spending via online banking tools and financial apps. We recommend that you engage yourself in this activity. With appropriate guidance on security, your teen should now be able to login independently.
- Consider using a separate account for college savings.
Focus on Insightful Giving
Most high schools require community service for graduation. This underscores the importance of giving back to others and serving your community. Talk to your kids about what volunteer experiences make the most sense in terms of their interests, your family’s values, and even perhaps their future career goals.
- If you believe in financial giving, continue to encourage your kids to donate a portion of their allowance and earnings to their chosen cause.
- Discuss the need to research an organization beforehand to make sure that their donation will be appropriately used.
Think About Impressions Based Upon Lifestyle
With peer pressure at its peak, these are challenging years. Kids are focused on virtually everything, making comparisons and being compared by others. While you want your kids to fit in, you need to find a balance to set realistic life expectations.
- Try to think about what your kids are learning from you when you talk about something you want or must have. Ask yourself if it’s a real need or a want.
- Be careful about the comments you share about others. Try to remain non-judgmental and positive.
- Your actions and comments should always support your own values and create realistic expectations for your kids.
Demonstrate Healthy Financial Practices
Your teens might be at an age where they want to be as different from you as possible, but they’re still paying attention to your actions and behaviors. Think about creating a good example in how you manage, discuss, and relate to money.
- Be a good role model for your kids by:
- Understanding your unique money personality.
- Being a prudent steward of your own finances.
- Being responsible when you talk with your kids, family members, and others about money.
- Maintaining a positive attitude towards work.
- Have honest discussions with your kids, sharing where you’ve done well and not so well with money decisions. You don’t have to share intimate details, but it’s good for your kids to hear about both successes and real life mistakes.
- Maintain an even keel with regard to how you react and relate to money. Avoid financial extremes of behavior that could have a lasting impact upon your children’s attitude towards money.
If you’re well-off, think carefully about the wealth effect, including the expectations you’re establishing for your kids now, and whether they can expect or attain similar standards of living in adulthood.
Expand Electronic Experiences
It’s vital that you continue to expand your teen’s financial skills using digital technology to help prepare them for their financial future.
- Maximize use of online banking functions. Introduce electronic check depositing, monitoring account balances in real time, etc.
- Introduce a personal financial app like Mint, to help your teen plan, budget, and monitor spending.
- Your teen needs a card payment option now that their purchase responsibilities are expanding. A prepaid card is preferable to a debit card associated directly to their account or a credit card that you co-sign.
- Even though they don’t need – and shouldn’t have – a credit card yet, it’s time to explain more about credit cards in preparation:
- Reinforce that it’s important to pay off a credit card bill each month. Discuss what happens if you only pay the minimum or miss a credit card payment e.g., late fees, interest charges, and the impact on your credit score.
- Talk about the importance of security. Discuss common financial scams, and how your teen can keep their card, personal information, and bank account(s) safe using unique, strong passwords that are not shared with others.