8 Essential Tips to Teach your Teen about Money
Guest Post by Julie Morgenlender
There are certain life skills that we don’t learn in school: how to wash clothes without the colors running; how to cook a decent meal; how to negotiate with a roommate who insists on putting their very loud alarm clock across the dorm room so it forces them to get up at 5am (I’ll never get over that one from freshman year.) A huge thing we don’t learn is how to manage money.
Money affects many facets of our lives, yet we have no formal training. The first time I wrote a check it was returned because I had signed the memo line. I was so embarrassed. I didn’t know any better. And that was just one of the first of many money mistakes I would make.
Now it’s time to teach the next generation how to handle their money. Let’s teach them everything we are glad we learned, and everything that we wish we had learned. You are doing your kids an enormous favor by teaching them now. Imagine never being surprised by debt, always having the savings you want for a trip, being able to afford your first car without any financing. This is one of the greatest gifts you can give them.
Remember, they’re never too young to start learning how to handle money. Today I’m talking about how to teach your teens about money, but even 5-year-olds can be taught the basics – and it’s much easier at that age than it is for an adult. So your teens are definitely ready. There are dozens of things you can do, but starting with these 8 tips will give you and your teen a solid foundation. And be sure to read the final tips, which are just for you.
- Give your teen money responsibilities. If you pay for all of their clothes, for example, give them a clothing budget instead and help them figure out how to manage it. It is important that they create a written plan. Make it clear that when they run out of money, you’re not going to give them more, and then follow through on that promise.
This means that if they spend all of their money in the winter, they won’t have anything left for spring clothes. If they spend it all on a trendy winter coat, they won’t be able to afford prom clothes. Then they will need to find a way to earn some money or else go without these things. This may feel harsh, but isn’t it better for your teen to struggle to buy new jeans due to overspending earlier in the year, than to one day struggle to pay the rent because they spent too much on eating out and concerts? Let them learn on the small things.
- Encourage your teen to get a job. This can be a formal job, like working at the local grocery store on weekends, or a less formal job, like babysitting on the occasional Saturday night. The sooner they begin earning their own money, the sooner they will come to appreciate what is required to do so. Even better, you will now be able to teach them what to do with their earnings. (We’ll get to that in a minute.) Best of all, it will give them a sense of self-reliance and self-respect.
- Teach your teen what to do with income. When they get any money, encourage them to immediately put a certain amount into savings. This can begin at any age. A 7-year-old can easily be taught how to do this with their allowance, putting 1/3 into savings, 1/3 towards charity, and keeping 1/3 for spending. Sit down with your teen and discuss in advance what percentages will go towards each purpose.
Remember, this isn’t only for their job income but also for birthday money, holiday money, allowance, and any other income. Talk about the logistics of managing the money. Will they split cash into different envelopes? Open separate bank accounts for each purpose? When they put money towards savings, are they saving for anything specific at this moment? Talk about what they might be saving for. Some common examples include:
- A car
- A smartphone
- The deposit and first month’s rent for an apartment
- Any large purchase they’ve been wanting to make
- Acknowledge that delayed gratification is hard. Sit down with your teen and choose one thing they really want right now, but that they can’t afford yet. Make a plan for how they will afford it. Let’s say your teen wants to rent a limo for the prom. It’s going to cost $100 per person. The prom is in 5 weeks. Talk to them about saving $20 per week until they have enough. Brainstorm ways they can earn that $20, and things they might avoid spending money on for a few weeks (eating out, new clothes, etc.) in order to save up the money.
If they find that one week they have $30, encourage them to put that money into savings just in case another week they can only manage to save $10. Remind them that if they have extra money available at the end, they can then use that to splurge on something fun or to save up for the next big thing. Like with the clothes budget above, it is much better to teach your teen about delayed gratification now, so that when it comes to something big like a car or a house, they have the skills, patience, and knowledge to make it happen.
- Talk about debt. Talk about why it’s bad. If you’re not sure, here’s one big reason. If you have ever had debt, be honest with the emotions surrounding it, how it makes it hard to sleep at night, the stress is causes. How it limits opportunities in life. It’s hard to quit a job to jump on a great opportunity to travel the world when you have piles of debt that you have to make payments on every month. Talk about ways to avoid debt:
- Saving money for the things they want and need.
- Buying a used car instead of a new one.
- Working and going to community college before transferring to a bigger (and more expensive) school, or maybe taking a few years off to work before going to college, if they go to college at all.
- Not using a credit card.
- Saying no to things they can’t afford that they don’t truly need.
- Have The Credit Card Talk. We all know how tempting a credit card can be. And how dangerous. So many teenagers start building up credit card debt as soon as they leave home. Teach your kids that:
- Credit cards are exciting, but can get them into trouble. It can take years, even decades, to pay off a credit card. I work with many 20- and 30-somethings who are still working to pay off credit card debt from their college years. They never thought it would happen to them but it did. Don’t let it happen to your kids.
- This post about interest rates will show them why if they can’t afford it today, they can’t buy it today. A $50 sweater might seem reasonable, but if they know it will cost $100 after interest rates, is it still a good idea? What about a $600 laptop that could end up costing them over $1200?
- With debit cards and cash, they won’t overspend.
- Teach them the incredible power of compound interest. Most people get very excited when I show them how quickly their small savings can turn into enormous savings. Teach them now so they will be excited to save, and so they can take advantage of time. This post explains how compound interest works and provides examples.
- We need less than we think. Lifestyle inflation sneaks up on all of us. Most of us could easily live with 1/3 the number of clothes or half the number of dishes. In the same way, we could easily get by with a smaller income if we avoid taking on new expenses. Start talking about what’s “enough” now, so that your teen can avoid unintentional lifestyle inflation.
Right now, it’s enough for them to simply be aware of the concept, so they won’t let it sneak up on them down the road. Some lifestyle inflation is ok, but we run into trouble when it happens unintentionally, and in ways we can’t support.
Now that you have an idea of what to discuss with your teenager, you might be feeling a bit overwhelmed. To help with that, here are some lessons for you to consider before you have those talks:
- What do you wish you had known when you first left home? What do you wish you knew now? Set aside a few minutes to sit down and make a list. Better yet, do that right now! In addition to the 8 items above, these are the things you need to teach your kids.
Refer to this list several times a year to make sure you’re on track to teach your kids everything they need to know about money. Not every item will be appropriate right now, so repeatedly checking the list will ensure you eventually cover it all.
- Model good money behavior. I’m sorry to say it, but just like eating ice cream for dinner, spending more than you can afford is something you shouldn’t model for your kids. If you don’t know what good money behavior is, use this as an opportunity to learn together. Let your kids know that you’re about to learn better ways to handle your money, and you want to do it together.
Find a program that makes it easy and fun, not a chore. Make it clear that your goal is to help them do fun things with their money. It’s not all about giving up things you love, it’s about finding ways to afford what you most want. And the same is true for them.
- Open up about your own money mistakes and wins. Most of us live in a culture where it is taboo to discuss money, but you’re not doing your kids any favors when you refuse to talk about it. First, if you’re struggling financially, they need to know this so they take actions to relieve money pressures, not contribute to them. Second, not talking about money gives a “do as I say not as I do” vibe, and we all know how ineffective that is. When you talk about money mistakes you have made, your kids learn that you want them to avoid the same mistakes, and they will listen more.
Down the road, they will know they can come to you when they make mistakes and you won’t judge them, because you understand. Similarly, share your wins so they can see the good that can come from handling money well. So often people are embarrassed by having a lot of money, but it’s important to use these as teaching experiences, also.
Money is an emotional topic. You may feel a bit emotional as you read this, and that’s ok. Feel those emotions. Some of this will be hard. You want to give your kids everything, and it can be hard to remember that not getting everything is ok. I remember my parents buying me some toys, but telling me I would have to use my own money to buy others. I was 10 years old. And you know what? I didn’t hate them for it at the time. It taught me to save my allowance if I wanted something badly enough, or to admit that I didn’t want it that badly after all. As an adult, I thanked them for it. The hard stuff is worth the effort.
Some of this will be easy. You will be surprised at how easily your kids accept these lessons, even the ones you believe are harsh. Kids are resilient and adaptable. They may just surprise you.
The hardest part for a lot of people is feeling that they can’t teach what they don’t know. It would be like trying to teach someone how to make Thanksgiving dinner when you can’t even make decent spaghetti. If that’s how you’re feeling, remember that it’s ok to hire someone. More than once, someone has hired me to work with their (sometimes adult) kids because their kids needed help, and they knew they weren’t qualified to help them.
And why not? We hire tutors when kids have trouble in school. We take classes to learn all sorts of skills. I have been hired to teach people how to crochet and no one is ever embarrassed by that, yet they hesitate to hire me to teach them about money. Why? There’s no shame in not knowing how to handle money. We think we should just know it somehow. Like it’s magic. What’s up with that? If you don’t know, then it’s time to learn. Read books and blogs, or hire someone to work with you and your kids.
Before I go, I encourage you to read (or listen to the audiobook of) The Millionaire Next Door by Thomas J. Stanley and William D. Danko. Your library probably has a copy. This book will completely change how you look at the concept of “rich,” but it also offers incredible insights into how our money beliefs and habits are formed by what we learned from our parents, just like your kids’ money beliefs and habits will be formed by what they learn from you. This book is a page turner that will open your eyes to all sorts of possibilities.
Congratulations! You are about to give your kids a wonderful gift that they will appreciate for the rest of their lives.
Julie Morgenlender is a Financial Freedom Coach, working with women and their partners to end their money stress and become money-EMPOWERED instead. She works with them to pay off debt, build up savings, take control of their money, and fund their dreams. You can find her at juliemorgenlender.com and join her free Facebook group where she will be glad to answer your money questions at facebook.com/groups/nesteggchick.
PLEASE NOTE: The writers of this article are not medical professionals. The information in this column is not intended and should not be construed as providing medical or psychological advice, but rather to offer readers information and provide a perspective to better understand the lives of themselves and their children. Articles on this website may be opinion based. The articles are not intended to provide an alternative to professional treatment or to replace the services of a physician, psychiatrist, psychotherapist or other licensed medical professional. If you do have health or safety concerns, please get in touch with a healthcare professional.
Disclaimer: All of the content in this post is the author’s opinion and thought. It’s accuracy and completeness are not guaranteed. None of the advice, opinions, or suggestions offered here are meant to be followed without consideration for your own personal circumstances. They are offered as something for you to think about. This isn’t specific financial advice. It is information. When the author responds to comments, those are her thoughts and opinions based on limited information. You are responsible for your own actions.