Teenagers are right on the cusp of major financial responsibility. They may already have their own jobs. Soon, they will be leaving home—and your supervision—to start paying their own bills, managing their money, and attempting to live within a budget.
Mistakes are a part of the learning process for any teenager. But as a parent, you have an opportunity to shorten the learning curve and offer guidance that can help your child avoid making unnecessary—and potentially very costly—financial mistakes as a teen and young adult.
Here are four ways to teach your teen about money and budgeting before they leave the home.
1. Emphasize the ability to save―not the ability to spend.
Financial independence and wealth are often associated with nice homes, luxury cars, exotic vacations, and a high overall standard of living. But when children internalize the merits of spending as a marker of success, it can lead them to aspire to high levels of spending and overlook the value and security of saving.
As a parent, you can help reinforce strong savings habits and spending discretion by demonstrating these preferences in your own money management. Share your savings goals with your children and discuss the security and stability you experience when you have money tucked away and invested for the future.
2. Provide children with a fixed allowance.
Even if your finances allow you to provide your children with money whenever they need it, an allowance is an effective tool to teach work ethic and responsibility. Managing an allowance can also help children learn how to operate with a fixed stream of income.
A set allowance gives your child the opportunity to make hard decisions about how to spend their money. For example, they may have to save up several weeks of their allowance to afford a higher-priced purchase. Tie the allowance to weekly chores or responsibilities, and let your child make their own spending decisions—even if that means learning from their early mistakes.
3. Open a bank account with your child.
As children enter their teenage years, they may have use for a bank account—and this is an excellent opportunity for parents to educate children on proper budgeting and money management.
Go to your local bank and open an account with your child so that you maintain access to their account. Minors as young as 15 years of age can open their own student checking account as long as their parent is on the account as a co-owner. Task your child with tracking their spending and managing their account balance, as well as performing basic tasks such as cashing checks and making deposits and withdrawals.
Monitor their behaviors and offer guidance to help them improve their money management, avoid unnecessary fees, and take advantage of the many financial tools offered, such as online banking and online bill pay.
4. Consider giving your teen access to a debit or credit card.
The idea of their child having access to plastic may make some parents cringe. However, this can be an excellent opportunity to offer guidance and coaching as your children learn how to manage these cards, as well as their spending.
Educate children on how easy it is to overspend with these cards, and show them the basic steps involved in charging to a debit card or withdrawing from an ATM. This is also a good time to explain how compound interest on credit cards works and how it can dig a deep financial hole if your child isn’t careful.
You can also provide coaching on how to be safe when making purchases online—an unavoidable scenario once your child moves out. Show them how to evaluate the safety of a potential website, for example, including familiarity with the brand and secure checkout options.
Remember: You can set daily spending and withdrawal limits to prevent major charges that would put your child in significant debt.
Pass on your financial wisdom to your children.
Financial literacy isn’t a talent anyone is born with. It’s a skill you can only develop through trial and error.
Parents have a significant role in shaping the financial habits of their children as they grow up. Use your child’s teenage years to set them up with skills that will benefit them throughout their life.
Discover more budgeting tips by downloading A Complete Guide to Budgeting.