Talking about money may be complicated, but talking to a teenager about anything can be a minefield. Combine the two and you’ll almost certainly find yourself faced with eye rolls and resistance. But having open conversations about money can help foster a sense of financial awareness that will benefit your child in the long run.
And what if you’re hardly an expert yourself? Maybe your credit score has fallen in recent years or you’ve never successfully balanced your checkbook. All is not lost — with a little forethought, you can still impart financial wisdom through daily activities.
“There are so many opportunities to talk about money every single day,” said Nicole N. Middendorf, wealth advisor and CEO at Prosperwell, a financial planning firm. “When you’re out spending money, or the kids need equipment for sports, or even lunch money, you can discuss how to make money or where all the money is coming from.”
Make a list of broad topics you’d like to cover over time, and broach each subject when it seems appropriate. Creating these goals ahead of time can help you make sure you touch on all the financial concerns you want your child to be aware of without making them feel like they are being bombarded with parental demands.
What exactly should you discuss? Consider these five themes:
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1. How to budget
Why it’s important: Budgeting is the cornerstone of a sound financial future. Yet, 34% of Americans said they don’t have a budget and, of those who do, 70% said they struggle to stick to it.
How to address it: Consider giving teens a fixed amount of money for lunch each week. If they want a more expensive meal or snack one day, they can opt to bring lunch from home another time. “Little lessons such as this go a long way in helping prepare for larger budgeting decisions in a few years,” said Brian Walsh, CFP and Manager of Financial Planning at SoFi, an online lender.
If your teen has a part-time job or side hustle, like selling artwork or babysitting, you can use their income to develop an more detailed budget. This can even work if you provide an allowance or cover the majority of your teen’s costs. “Even if the parents are paying for everything, it’s good to have kids work through a personal budget for themselves,” said Heather Reihs Keller, a volunteer instructor at My Money Workshop, a financial literacy organization serving the New York tri-state area.
Online checking accounts also make it easy for kids to have a record of their spending. But it’s still important to show teens how to track where that money goes. “Make sure teens understand the credits and debits and how things are going in and out of their accounts,” Middendorf said.
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2. How to control spending
Why it’s important: Creating a budget is one thing, but learning to follow it is a whole new beast. According to a recent survey by Piper Jaffray, teens claim to spend $2,600 a year.
How to address it: Impart financial lessons while you’re shopping together, so teens can see smart money decisions in action. “If you’re back-to-school shopping, provide a set amount of money you’re willing to spend and teach your teens about trade-offs,” said Walsh. For instance, your teen can choose to buy a single pair of name-brand sneakers for $100, or – sneakers, a backpack, sunglasses and a shirt – by bargain-hunting and making smarter choices.
Reihs Keller also noted the importance of comparison shopping and how delayed gratification can pay off in the long run. “I try to never pay full price for anything,” she said, adding that she always looks for ways to save money on whatever she’s buying.
She recommended advising teens to shop online to find better prices on items they first spot in a brick-and-mortar retailer. Though she may be preaching to the choir — teens are becoming increasingly savvy about looking for savings online, with 50% preferring Amazon for their online shopping.
However, parents can help by introducing them to programs like eBates, which can help teens earn cash back on purchases when they shop online at select stores.
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3. How to earn money
Why it’s important: While it’s good to let teens practice budgeting with money parents provide, you’ll also want to foster an appreciation for a hard day’s work. When teens start earning their own money, there’s a whole new set of financial lessons to teach.
How to address it: “Explain their paycheck and withholding taxes to them,” Middendorf said. “What seems like a lot of money, at first, may not be that much.”
For teens too young to work — or if job options are limited in your area — your teen can find other ways to earn money. “Help your teen develop a side hustle,” advised Walsh. “Help them think through creative ways [to earn money], such as mowing lawns, shoveling snow or selling unused goods.”
John O’Rourke III, vice president and Private Banking and Wealth advisor for First American Bank, in Coral Gables, Fla., also recommends paying for chores your teen can do around the house. “My siblings and I were paid our allowance at the beginning of the month, and a portion went right into our savings account for clothing. The rest was our ‘play money,’ for movies, candies, or toys.”
The trick to leveraging an allowance to teach teens about adult life? Show them that if they spend their whole allowance, they aren’t getting more money from you; they will have to find a way to earn more.
In adult life, this can translate into a tough lesson on frugality — or an incentive to find ways to make more money. “I learned to wash cars and mow lawns,” O’Rourke said. “It was a valuable lesson — hard at times, but valuable.”
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4. How to save
Why it’s important: Of course, as the old adage goes, “It’s not what you earn, it’s what you keep.” Teaching teens the importance of savings can help set them up for a life where they aren’t living paycheck to paycheck. Instead, they will have a buffer for emergencies, investment opportunities, or even spur-of-the-moment experiences like trips and concerts. “If you can get your child into this habit from the start, you’ll be setting them up for future success,” O’Rourke said. “It’s empowering and comforting to know you have some money set aside.”
How to address it: “If there is a major purchase they want to make such as a trip, car or new phone, use it as an opportunity to help them plan ahead,” Walsh said. “If they are old enough, help them apply for a job and connect their earnings back to their savings goal.”
You can establish an online savings account and help them set up automatic transfers from checking to savings every time they get paid. “For every dollar they earn, encourage them to save 30 cents of it, and don’t put any limitations on the other 70%,” O’Rourke advised.
For teens who aren’t working yet, an old-fashioned piggy bank helps teach the concept of saving. “Spare change adds up quickly,” Reihs Keller said. Tie savings into a long-term goal kids can work for, whether that’s a set of high-end headphones, a car or college.
And don’t be afraid of instilling knowledge through small soundbytes. “Pay yourself first,” is a common mantra used by finance pros. Although cliches like this may elicit an eye roll or a groan, teens are likely to internalize these phrases, even repeating them to their own children years later.
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5. How to pay for college
Why it’s important: “One of the biggest mistakes parents make is not speaking to their children about college costs and who is going to pay for it,” Middendorf said.
With student loan debt in the U.S. at nearly $1.6 trillion, not discussing how to pay for college is a huge oversight that can leave young adults in a financial hole when they should be getting ready to live on their own.
How to address it: “When you’re discussing college costs with your child, be very transparent and share the total investment being made into their education,” O’Rourke said.
If you’ve saved for them, either in a 529 plan or other savings vehicle, start by discussing how much has been put aside and helping them do the math to see how much of their tuition and living expenses is being covered. It’s important for teens to know how much they will need to earn, save, or borrow to make up the difference. Even if the picture is bleak, at least they will be prepared.
Also help them break down the total costs of student loans they might need to take out, and how long it will take them to pay off that debt. Once your teen realizes the financial costs and responsibility attached, he or she might decide to opt for a less expensive school or to spend two years at community college first.
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Parents can find teachable money moments every day. You can have a family saving contest, putting money in glass jars to see who can save the most over six months, or have family game nights with old standbys like Monopoly where you can walk them through buying, spending and earning passive income.
Regardless of your approach, you can help your teens build a strong financial base by showing them how to budget, earn and save. Set an example by establishing these good habits yourself, and you may even find your own financial future looking brighter, too.