How to Talk to Your Teens About Money

Family, mother and teenage daughter using laptop computer credit card and doing online shopping. Women sitting at home in kitchen talking smiling choosing gifts

Financial literacy starts at home. And if you have teenagers in your house, the time you have to impress on them to make good financial decisions before they’re out of your house may be dwindling. We’ve all heard the shocking statistics about how financially illiterate most Americans are. From choosing a high-interest credit card to not saving for retirement, the consequences of making poor financial decisions can be devastating. Remember, as a parent or guardian, it is your responsibility to teach your children financial literacy. Here are some ways to approach your teens about making good financial decisions:

  • Show them how to create a budget. Sit down with your teen and help them create a personal budget with the goal of spending less than they earn. Whether they are earning an allowance or have a part-time job, help them determine their income and the difference between their estimated expenses and their actual expenses. Discuss wants (i.e. food and shelter) versus needs (i.e. the latest gadgets and sneakers) and be sure to emphasize that using a budget is the key to controlling your finances.
  • Talk about saving and investing. Learning the power of compound interest sounds complex, but you’d be wise to talk to your teen about the importance of putting their money to work and watching it grow. Explain that when they earn interest on savings, that interest earns interest on itself and this amount is compounded monthly. And the sooner you start to save, the greater the benefit of compound interest. If you opened a college savings plan for your teen when he or she was a baby, going over the statements with them would be a great way to illustrate this.
  • Enroll them in a variety of personal finance courses. If your teen’s school offers a personal finance course, make sure your child is enrolled. Only about a third of public schools in the United States require that high schoolers take a personal finance course, so you may need to gather your own resources. Ask your teen to help you look online for sites or apps that promote financial wellness and other educational money management resources.
  • Protect them from common money mistakes. Cluing your teenager in on what poor financial judgment looks like can be a powerful lesson. Teaching them that life is not a free ride by making sure they’re responsible for at least some of their living costs – such as their cell phone bill or auto insurance if they have a car – can have a huge impact on how they view their financial security. Making sure they save at least some of their earnings and teaching them to be satisfied with what they have can help them avoid making costly mistakes or developing bad money habits as adults.

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