How to Teach Teenagers About Managing Money

Ever cringe when you hear yourself say to your teen, “Where did your allowance go?” No, you haven’t turned into your parents. But keep in mind: When it comes to money, teenagers today, with phone in hand and online shopping at their fingertips, have more complicated choices than their parents did. ¹ The good news? Teaching teens about money now could make them more financially stable when they’re older.

Think back to when your child played with blocks. Remember how the highest tower always started with a solid base? Teens can build financial knowledge the same way. First, they have to develop the ability to do things like research, set goals and follow through with them. Because a good understanding here could help them with money decisions later on. ²

When talking about these financial knowledge building blocks, you can relate them to the concept of a part-time job: ³

Planning – Before they begin a new job and money begins burning a hole in their pockets, help them set some money goals. The FDIC created a learning course for young adults called “Money Smart for Young Adults.” To keep things manageable, work together to break financial goals into categories—things they want to purchase in the next year, one to five years and after five years.⁴ 

Earning – Teenagers tend to do a double take when they see deductions on their paychecks. So, your teens’ paystub—especially that first one—can give you a chance to introduce the idea of taxes. Try walking through each line-item and explain that taxes help pay for things like schools, road maintenance and medical help for the elderly. You can also explain that “gross” pay is what they make before deductions. And that the amount they take home is called “net” pay.⁵ 

Budgeting – Budgeting with your teenager can be pretty simple. Explain that a budget’s main purpose is to help them make choices about how much to save and spend.⁶ Start by having your teenager make a list of their monthly income. (Remember, “income” includes allowance and birthday gifts too.) Next, make a second list for monthly expenses. Be sure to factor in payments like cell phone bills and money they spend on those macchiatos and meals out with friends. Then, do the math. Subtract expenses from income to show them what’s left to spend each month.

Teens who learn how to budget may start seeing money as a way to reach big-picture goals. This could also start a conversation about planning and saving long-term for bigger purchases, like a new cell phone, car or even college tuition.⁷

Saving – Once that budget’s complete, it could be time to talk about saving—how it’s done and how much to save. Start by helping them open a savings account, then show them how to set money aside. Some financial apps can help too. Experts suggest helping kids set up a program that puts at least 10% of all earnings directly into a savings account.⁸

Explain Wants and Needs

For teenagers, it can be hard to think beyond next week’s big Bio test. So, it might be your job to help them see into their future. You could remind them that good money choices today can affect their lives down the road. Try asking them to take out their budget, then take a look together. Mention that spending on a “want” can impact their ability to pay for needs later. Then, talk about which expenses are true needs and whether some of their “fun” money might need reshuffling.

Teach the Value of Tracking Finances

Financial record keeping may help teens prioritize between those wants and needs. Having grown up in the digital age, most teens are used to smartphone apps that help them get things done. Good news: Some banks offer apps for checking accounts built just for teens. With these accounts, they can set savings goals and be introduced to spending with a teen debit card. Parents can even track account activity, lock or unlock their teen’s debit card or auto pay allowance right in the apps.

Talk About Banking

As teens create financial planning goals, it may help to describe how banking can help reach those goals. Help your teen think of banks as companies that keep money safe.⁹ You can highlight that savings accounts can help them earn interest and save for long-term purchases. You can also mention that checking accounts generally store money to be used for day-to-day, short-term expenses like gas and groceries.¹⁰

Introduce Credit

Check those credit offers you get in the mail—because they may have your teen’s name on them. Since credit can have a big effect on their financial futures, you may want to introduce the topic now. You could start by explaining that credit represents a loan. They may apply for credit cards, student, installment and home loans during their lives. You might also remind them that saving for a purchase is a good alternative to using credit.¹¹ 

Discuss Debt

Now may be a perfect time to explain that debt is defined as money they owe on loans, including credit cards. You could start by talking about interest payments and how they actually add to the amount people pay for a loan. Use your own experience to show them that something they finance today—a car, for example—may be worth very little once they’re done paying. Borrowing to buy things that lose value typically adds to someone’s “bad” debt.¹² On the other hand, loans that help earn more income—think school or small business loans—are considered “good” debt. You can also remind them that small purchases on credit cards can add up to big debt, especially if they can’t pay them off each month.

Address Saving for College

As teens move through high school, you might recommend they investigate ways to finance a college education. A few areas to explore: How to save for tuition and apply for financial aid or student loans. Tell them like most big investments, going to college will require plenty of time and research. They may be encouraged to learn that college graduates usually see long-term returns on that investment, like more career options and higher earnings potential.¹³

You don’t have to be a financial expert to teach your teens about money management. That’s because they learn most by watching you—from your attitudes about money to the way you spend. When it comes to money matters, you might try thinking out loud, just within earshot of the teen you love.