One of the many important life skills a teenager needs to learn is money management. As a parent, you want to raise a successful and independent future adult. Teaching money management intentionally is crucial to your teens ability to be a successful adult.
Teaching teens intentionally helps to prepare them for life outside your home. They will need to learn how to budget, how to save, how to manage their impulses, and how to make wise financial decisions. It’s possible for an under-prepared person to succeed without any family education, but they will have to spend years learning it all on their own to get to a successful place.
Even if you’ve never talked to your teen about money, you’ve been teaching them silently about how you manage your own money and what money means to you. My parents have never talked to me about money but I learned a lot just from watching them. Mostly, I learned what not to do, such as borrowing money from others and missing payments (more details here). To avoid putting your teen through the same experience, prepare them for success
So let’s talk about how to teach your teen about money.
1. Talk To Them
Even if they appear not to be listening, they probably are. We all remember something our parents or guardians said during those years, so make sure to say what you want them to remember.
Educate them on the values you want them to have in life. Do you want them to work hard for their goals? Do you want them to be prepared for future problems? Whatever you want them to know and remember, make it known.
2. Variable Chore Cost
If your teen does not have a job outside the home, or if they are still doing chores for a monetary reward (allowance), consider giving each chore a specific cost instead of a fixed sum for completing all chores. This serves two purposes:
- It teaches your teen that not all work is valued the same. This helps show your teen the difference in minimum wage work/cost and more advanced skill work/cost. This is not designed to make your teen think less of people work from minimum wage but rather to show then the different options for the future.
- This also teaches your teen what to expect in future jobs. If they pursue a less skill-oriented job they can expect a lower pay. If they pursue a more skill-oriented job they can expect a higher pay. This is not meant to discourage them from following their passions but to give them insight into how their decisions may play out.
Note: Not all skill-oriented jobs require a college degree. Trade school is an affordable alternative that offers real-world skills in fields that are always in demand.
3. Fixed Chore Cost
Alternately, you can give a lump sum for completing all chores to show your teen that all future professions require many different tasks be completed as the expectation.
4. Mandatory Family Costs
Every time your teen is paid, have them set aside 10% for a contribution to the family. This can be handled in one of two ways:
- They still have access to this money and can decide how they wish to treat the family (order pizza, go out to dinner, take everyone to the movies, etc.). This helps to teach them self-confidence, pride, and a sense of accomplishment because they are able to provide something for their family.
- This can be given to the parents/guardians as a “rent” payment. This rent payment is to help prepare your teen for future reoccurring bills and help them to manage their money to ensure all bills are paid. (Note: This money should be set aside in a separate bank account and returned to the teen when they prepare to move out on their own.)
5. Money Management System
Everyone needs some kind of money management system. A money management system is any system used to plan and manage your finances. This can take many different forms: a written budget, cash envelopes, electronic envelopes, jars, etc.
Each family will have their own system of what is important. The most common categories are:
Typically, four or fewer categories are ideal. The purpose of this is to show them how to divide their money into important categories. Be sure to explain the purpose of the system and your reasons for implementing the system.
Important note: if you want this information to stick, give your teen a sense of control over their money by allowing them to determine how they would like to divide their money. If they don’t have a say in how it’s divided, they’re likely just doing to get angry and/or reject the system entirely.
Because most people are visual or kinesthetic learners, using a visual system (like jars or envelopes) is most helpful in teaching teens about how to prioritize their money. The act of seeing and manually dividing their money helps them to develop a more lasting understanding and practice of these skills.
If your teen is an auditory learner, spend more time discussing the importance of this system and why you believe they should use it.
Regardless of what type of learner your teen is, make sure you have them explain back their understanding of the system.
Sooner or later your teen will learn there is no such thing are free money, so it is best for you to be the one to teach them about this. If your teen needs a larger sum of money in the near future (such as wanting to purchase a car), you can agree to give them a loan and develop a payment plan prior to giving them the money.
Or you can talk to them about saving up their own money to make the purchase in full. This is a great time to educate them on making wise financial choices (such as saving more to buy a reliable car vs. buying the cheapest car they find).
Loans teach teens there is no free money.
Savings teach teens about delayed gratification.
Both options have value and no matter which option your family selects, educate your teen on both.
Help prepare your teen for adulthood by teaching them financial responsibility early on. Teach them the values of saving money, delayed gratification, routine costs, and future job expectations. Talk to them about your family values and how you want them to relate to money.