Last week we discussed the importance of teaching budgeting basics to children. This week we turn our focus and more detail to help you in nurturing financial savvy with your teen. Navigating the complex world of finances is a vital life skill, and what better time to instill this wisdom than during the formative years of adolescence? Teaching teens about money not only equips them with essential financial literacy but also sets the foundation for a responsible and empowered financial future. In this blog post, we'll explore the importance of financial education for teens and provide ten practical strategies for parents, educators, and mentors to impart valuable money lessons.
The Importance of Teaching Teens About Money
Real-world Preparedness:
As teens inch closer to adulthood, they need practical skills to navigate the financial challenges they'll encounter. Public school no longer teaches on the topic of personal finance. Even if they did, you are still the best teacher and know your teen best. Teaching them about money ensures they are well-prepared to make informed decisions regarding budgeting, saving, and spending. When you teach your teen, you will uncover his or her bent towards money. Are they a natural saver or a natural spender? Do they understand the value of a dollar? Have they made the connection that life costs money and mom and dad won’t be there after a certain point to continue to support their needs and wants. Knowing these traits will help you point your teenager in the right direction so he or she will become a master at managing his or her finances.
Establishing Financial Independence:
Financial independence is a crucial aspect of adulthood. By imparting money management skills early on, teens are better equipped to handle their finances independently when they step into the real world. There is nothing wrong with your teenager being gainfully employed while still in high school. There are many options available to earn an income in exchange for hard work. Many banks and credit unions offer teen checking account options along with a debit card. As the parent, you still maintain overall control of the account but you can help guide, coach and encourage.
Cultivating Responsible Habits:
Adolescence is an opportune time to instill responsible financial habits. Teaching teens about money encourages them to make thoughtful choices, prioritize needs over wants, and develop habits that will serve them well throughout their lives. Be sure to help your teen understand the basics of needs and wants. Help him or her to understand the categories of saving, spending, and giving and how to track this on a daily, weekly, and monthly basis. Share your own mistakes with your teen so that he or she can learn from your mistakes. Teach what happens when you spend more than you make. Talk about the negative repercussions like bankruptcy, repossession, and foreclosure. No one wakes up one day and believes that will end up in any of those situations. When they do, it’s because they did not take the proper steps to prevent that from happening and most often due to lack of understanding the basic principles of money.
10 Practical Strategies for Teaching Teens About Money
Open Communication:
Begin by fostering an open dialogue about money. Encourage teens to ask questions, express their financial concerns, and share their thoughts on budgeting. Creating a safe space for conversations allows them to develop a healthy relationship with money. Communicating with teens in general can be challenging and frustrating at times but the battle is worth it to involve your teen in financial discussions.
Set a Personal Budget:
Work with your teen to create a personal budget. Help them understand the concept of allocating money for different purposes such as savings, spending, and giving. This hands-on experience instills the importance of mindful financial planning. It does not have to be complicated. Teach your teen to do a zero-based budget and to do it every month before the month starts. The zero-based budget tells every dollar where to go.
Introduce the Basics of Banking:
It’s time to transition from the piggy bank or the sock drawer to bank checking and savings accounts. Teach teens about the basics of banking, including savings accounts, checking accounts, and the importance of responsible account management. Walk them through the process of depositing and withdrawing money and explain the concept of compound interest.
Teach the Art of Saving:
Encourage teens to cultivate a savings habit. Whether it's saving for a special purchase or creating an emergency fund, instilling the importance of saving helps them understand the value of delayed gratification and the security that comes with financial preparedness.
Explore Investing Concepts:
Introduce teens to the world of investing, explaining basic concepts such as stocks, bonds, and mutual funds. While their investments may start small, understanding these principles lays the groundwork for future financial decisions. When it comes time for your teen to participate in their future company’s 401(k) plan, they will have an advantage over others starting out their careers. Encourage them to immediately start putting 15% of their earnings towards retirement and they will be able to set their retirement on when they are ready to retire versus a specific age. Use this opportunity to teach the 8th Wonder of the World, Compound Interest. If your 15-year-old teen were to put away just $100 per month in an S&P fund earning an average of 11% annually until age 65 (only $60,000 invested), the total balance would grow to an astonishing $2,002,525! Let them play around with this Compound Interest Calculator.
Practice Smart Spending:
Teach teens to differentiate between needs and wants. Encourage them to think critically about their spending choices, prioritize essential expenses, and make informed decisions when it comes to discretionary purchases. This becomes a great opportunity to not give your teen money for everything they ask for. If your son or daughter wants a car when they turn driving age, work with them to create a plan. Be creative. You could encourage them that you will match their savings to help them buy a car for cash. If they want it bad enough, they will do whatever it takes, especially with the incentive a match.
Credit Education:
Equip teens with an understanding of credit and its implications and its’ dangers. Explain how credit cards, loans, and mortgages work. This may shock some of you, and your teen, can live without a credit score. I’ll share more in a future post. Paying cash for all expenditures, saving, investing, giving and living on less than they make should be their #1 priority: not building up a credit score. A credit score is nothing more than an “I love debt score.”
Part-Time Employment:
Encourage teens to take on part-time jobs or engage in entrepreneurial ventures. Earning their own money provides valuable lessons in responsibility, time management, and the effort required to generate income. Give your teen an opportunity to earn "commission" instead of an allowance by doing chores around the house. Work at the local Chick-Fil-A or grocery store. Let them start a lawn or a babysitting business. Get them involved in working in the family business. The possibilities are limitless.
Involve Them in Family Finances:
Include teens in discussions about family finances. Share insights into budgeting for household expenses, paying bills, and planning for future financial goals. This involvement provides a real-world perspective on financial decision-making. Involve your teen in the monthly budgeting process. Let them know how much things cost and talk to them about preparing for their future and why it is important to begin saving now.
Lead by Example:
Children and teens learn by observation. Demonstrate responsible financial behavior by making transparent financial decisions, discussing your budgeting strategies, and emphasizing the importance of saving. Your actions serve as powerful lessons that resonate with teens.
Teaching teens about money is an investment in their future financial success and well-being. By incorporating these ten practical strategies, parents, educators, and mentors can empower teens with the skills and knowledge necessary to navigate the complexities of personal finance. As we guide the next generation toward financial independence, let's ensure they are equipped to make informed decisions, cultivate responsible habits, and build a foundation for a secure and prosperous future. Together, let's shape a generation that not only understands the value of money but also knows how to manage it wisely. For more information, tips and tools, check out How To Teach Teenagers About Money.
Be Free,
Greg Carroll
Legacy Financial Coaching
Become A Better Steward
Whether you are financially frustrated or have big money goals, I help you take control of your money so you can live debt-free, build wealth and better steward your resources to create a lasting legacy. Find out what its' like to Work With Me.
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