Helping Teach Financial Literacy & Responsibility to Teens
NO! That was the extent of my financial learning when I was a child! That’s not entirely true, but it is tough to talk about money as a family. But the rewards for doing so can lead to a much better future for your children and generations to come by normalizing conversations about money.
Let’s start with how they make money so they can learn to manage it. And for younger teens this most likely comes in the way of chores or odd jobs with family, friends, or neighbors. As they get older, this can turn into a job in your community. What a wonderful life skill to start developing by showing how hard work is rewarding, not only financially, but knowing you can accomplish the job.
There are many different apps to help manage their money. Most financial institutions have youth debit cards. You can also set up a savings account with your bank, with you as the co-owner of the account. With a little research, you can find the method that accomplishes what you want your children to get out of this process. Common apps include Greenlight, Step, FamZoo. Your kids also learn the added responsibility of managing how you keep and carry your debit card.
As part of the learning process, explain the difference between a debit card and a credit card. Show them why carrying a balance on a credit card is costly and why paying it off each month is key. And the interest rates on that debt that occur when they do carry a balance. You will likely just get them a debit card with a set balance, but this is a perfect time to start teaching them about credit cards.
Now that they have money, what are their goals? Are they saving for a car, clothes, trip, etc.? Sitting down and coming up with a plan on what you are going to save versus going to spend. Help them set up an amount that they commit to saving each month, no exceptions. Then talk through how that plan needs to fluctuate based on what they are saving for and when they want to make that purchase. Hopefully, by aligning goals to their spending/savings habits will drive lifelong learning around basic financial literacy.
Budgeting can be complex to think about, but you can set a rule for how you and your family want to prioritize different areas. Some common formulas are 50/30/20 or 60/30/10, spending, saving, long term investing/giving. This formula can be constructed any way that you want but will give you a formula to build discipline with. As I mentioned above, maybe the formula needs to change to match an upcoming goal.
And while you are working through these conversations, share the decision-making processes that you go through as a parent. Letting your kids know your goals and decision-making process will inform them why sometimes you say no to things. You can underscore the importance of the discipline it takes to really grow your wealth and be able to do the things that matter most to you. You don’t have to share every detail, but enough to give them the basics and start setting a mindset towards good financial behaviors.
Finally, let the reality of their decisions hit home. Didn’t do your chores, no allowance. Overspend and didn’t save, goal not realized. And this is one of the reasons that I love sports; there are so many life lessons that can be gained. These realities are real to them, but it isn’t the end of the world. Despite them telling you it is! Think about this, it is better to make small mistakes now versus making bigger mistakes with credit cards or loans later.
The two main takeaways that I want you to have are helping them start shaping the discipline and habits that it takes to manage their finances. The systems are easy, but sticking to a plan may not be. According to FINRA, fewer than 1 in 3 young adults could correctly answer basic financial literacy questions. Starting these habits in the teen years helps change that.
Next month we will do a book review of The Richest Man in Babylon, by George Samuel Clason.
