As a parent who has navigated the challenging terrain of teaching financial responsibility to teenagers, I understand the pivotal role it plays in shaping their future. Having raised money-savvy children myself, I’ve witnessed the transformation from carefree adolescents to young adults facing the complexities of the financial world armed with the lessons learned at home. Failing to impart these crucial skills can indeed leave them grappling with financial challenges and potential debt. This conviction underscores the significance of instilling a sense of financial responsibility in our teens.
Drawing from my own experience, teaching teens about financial responsibility is a multi-faceted journey. It involves more than just handing them pocket money. It’s about guiding them through earning and managing money, engaging in conversations about budgeting, unraveling the financial intricacies of running a home, elucidating the pitfalls of credit card debt, and fostering a genuine savings culture.
These lessons, forged in the crucible of practical experience, lay the groundwork for a financially resilient future.
Read on for details on how you can use the above steps to raise a financially responsible soon-to-be adult.
Let Your Teenager Earn and Manage Their Pocket Money
Letting your teenager earn and manage their pocket money can be a practical way to teach them two valuable lessons in money management, namely that:
- Money is a limited resource.
- They shouldn’t spend more than they can afford.
But for this to work, you’ll need to:
- Give them a regular amount.
- Give them ways to earn and supplement that amount.
Concerning giving your teenager a regular amount of pocket money, how much you can offer isn’t important. A great example of how to teach teens financial responsibility is to sit them down and jointly agree on a fixed amount and how long that amount is supposed to sustain them. This way, they’ll get a taste of the reality of budget restrictions and budgetary guidelines and learn to avoid things they can’t afford.
As for giving your teen ways to earn extra pocket money, it’ll teach them that money isn’t an infinite resource and that a lot of time and effort goes to earn each dollar you give them. This is important, especially since most teens have no appreciation of the value of money as a resource. It can also be a great way to prepare your teen for their first job.
Some of the ways your teenager can earn pocket money include:
- Mowing your/the neighbors’ lawn
- Babysitting
- Taking care of your pets or those of your neighbors
- Doing paper rounds (AKA delivering newspapers around the neighborhood)
- Starting a blog for a local business in the area
- Cleaning cars around the neighborhood
- Taking on summer jobs
- Helping you sell items you no longer need for a commission (can be online or through a yard sale).
Your teen could also clean out their closet and sell used clothes online for cash and extra money.
You could also pay your teenager to do household chores. However, you should only pay them for tasks beyond their normal duties (like keeping their room clean, taking out the garbage, or doing the dishes).
Teach Your Teenager Financial Responsibility Through Budgeting
There are a lot of personal budgeting methods that exist. Budgeting is an important part of money management skills for youth, and you can teach your teens about it by doing the following tips.
Teach Your Teenager How to Plan Their Expenses by Prioritizing
One of the best ways to teach your teens how to prioritize what to spend on is to talk to them about the budgeting tips and tricks you use in your everyday life to meet your financial obligations. The beauty of this teaching method is that it’s based on someone they can relate to (you) instead of using examples from a book or an online resource.
For this to work, start by having an honest discussion with your teen about what you make and how you allocate money for things like bills, shopping, and other household expenditures based on priority. To make it even more relatable, demonstrate how you create a budget and budget for the money you spend on them (such as school trips) and explain why sometimes you have to say no to some of their requests for money.
Once they know the basics, move on to explaining the difference between actual and expected expenses, as well as short term and long term expenses. While you’re at it, use your finances to demonstrate how you save for long-term goals and how they can apply that to their finances. You can also use a personal finance flowchart as an illustration to demonstrate these money management lessons.
Also, touch on some of the tricks you use in your everyday life to resist the urge to spend more than your income allows.
Get Your Teenager Involved in Budgeting
To teach teens about financial responsibility must include budgeting principals. After arming your kid with all the budgeting knowledge they need, give them a chance to apply what they learned by getting them involved in real-life budgeting exercises.
There are several ways to do this, but perhaps the most commonly used is to let your teen take over their budgets for about a week.
- To make it more realistic, make sure that they’re managing more than just their pocket money and that they know you’re not going to give them more money if they mess it up. For instance, you can let them budget their monthly allowance, which may include their pocket money plus money for shoes and clothing and their allocation for social activities. They should practice ways to improve their budgeting skills while still young to avoid mistakes later on.
- After the trial period is over, chances are they’ll have made a few mistakes, but don’t prosecute them. Rather, talk to them about their experience and what they struggled most with. Explain what they could have done differently, especially when it comes to prioritizing their expenditures.
- Next, highlight the key lessons from this trial period and, after a while, try the experiment again to see if they’ve learned from their mistakes. Chances are, after several weeks of stumbling, they’ll have learned a few things about setting a budget and sticking to it.
- Another way to get your teenager involved is to allow them to sit in on family budget discussions. To avoid discouraging them, start with the simple stuff and manage your expectations (i.e., don’t expect them to understand everything in discussion with your financial planner the first time). You can teach them the budget by paycheck system so they are ready when they get their first job.
The idea is to let your teen learn at their own pace, how much you earn, and how it’s allocated to monthly bills, day-to-day expenses, investments, luxuries, medical expenses, and other expenses such as school fees. This way, they’ll learn how to account for every dollar in their future earnings, so they don’t end up spending more than they earn (one of the worst financial habits). This helps teach teens about financial responsibility through action.
If they don’t know about banking logistics such as instant online check cashing and direct deposit times, they will have to become familiar with those. You can’t spend money that you don’t have, so knowing the timing of these items can really prevent deficit spending.
Instill a Habit of Budgeting
Once your teenager learns the intricacies of budgeting, you’ll want to ensure that they make a habit of it. Remember, it’s one thing to make a budget and stick to it for a few weeks, and an entirely different thing to keep doing that in the long run.
To help you instill a habit of budgeting in your teenager, here are a few suggestions:
- Help your teenager find a budgeting app. There’s a ton of mobile apps that make budgeting fun for teenagers by appealing to their interests. For instance, some apps, such as the Game of Life, use gaming elements to teach teens important financial concepts. Depending on your teen’s interests, here are a few apps you could try: Mint, FamZoo, Wally, and BusyKid.
- Get them involved in a savings challenge. To keep your teen motivated, make the challenge about something they genuinely want, and set it up such that they’ll have to budget to get it. This could be about a concert they’ve always wanted to attend, a trip with friends, or a gaming console.
- Set up a simple spreadsheet budget. This should include columns for expected and actual earnings, expected and actual expenditure. It should also have a section that captures their periodical (it could be monthly or weekly) savings goals. This way, they’ll get a snapshot of their goals and progress, which will keep them focused on sticking to their budget.
To give you an idea of how you can set up a spreadsheet budget for your teen, here’s a sample budget for teenager worksheet template:
| Income | Expected | Actual |
| Allowance | ||
| Wages | ||
| Other | ||
| Total | ||
| Spending | ||
| Transportation | ||
| Clothing | ||
| Entertainment | ||
| Giving | ||
| Other | ||
| Total | ||
| Monthly Goals | ||
| Savings | ||
| Other | ||
| Total |
Keep in mind that you don’t have to use all of the above strategies. It all comes down to what motivates your kid, and no one knows that better than you.
This is a great aid for your teen if they are working on how to save money as a high school student.
Don’t Bail Out Your Teenager When They Overspend
Sometimes, even teens with healthy money habits can get carried away when shopping and exceed their budget allocation for a particular item. When this happens, don’t bail them out by covering their unplanned purchase.
Rather, calmly let them know that they’ve exceeded their budget allocation and that they’ll have to wait until their next allowance or paycheck (could be from a job if they’re employed or from doing household chores). If they can work extra hours to cover the unplanned expense, let them.
Whatever you do, don’t let your teen get the idea that they can always come running to you when they disregard their budgetary restrictions. Sure, it might seem a bit harsh and against your parental instinct, but teens who don’t depend on their parents to bail them when they overspend are much more likely to resist the urge to make impulse buys.
Part of preparing teenagers to be financially responsible adults is to set boundaries with the amount of money you give them, and letting them sort out their mess when they overspend is one way to do it. Learning how to budget with irregular income will be a huge benefit to them later in their life.
Think of it this way: would you rather they learn the hard way now, when the stakes are low, or struggle with debt later in life due to bad spending habits?
Talk to Your Teenager About the Financial Implications of Running a Home
Every teen needs to understand the realities of having a home or apartment. This is especially important for teens close to the 20-year mark because this group tends to want to be out on their own without fully understanding what it takes to run a home.
Financial implications of running a home are a great example of how to teach teens about financial responsibility in addition to personal banking. Knowing general banking traits such as how to void a check will go a long way in their financial education.
If your teen has been talking about getting their place, help them understand that it’s not just the rent they’ll need to worry about. Things like cable, electricity, food, insurance, phone bill, gas, and other expenses need to be taken care of, and that’s before they even think about fun.
If they have a job, are they making enough to be able to cover all these personal expenses (and possibly more) and still be able to set aside money for savings and emergencies? This is an important question that needs an answer before any teen can be allowed to live on their own.
There are a lot of alternative cheap housing options available they might want to consider before putting down permanent roots somewhere.
Explain the Consequences of Credit Card Debt
If you own one, you know how dangerous credit cards can be when used willy-nilly. There are so many buy now pay later stores online no credit check stores available that is it easy to fall prey to these institutions.
While credit cards may come in handy in some situations, they usually come with several charges that can add up if you exceed your spending limit, miss a payment, or make abnormal purchases.
You can get a credit card without a bank account if your teen has interest. When you get approved for one, you’re usually furnished with lengthy cardholder agreement documents that outline all the terms and conditions you must adhere to. Also included in this paperwork are the various fees you might incur as a cardholder, and care must be taken to minimize or avoid them altogether.
Some of the credit card charges you’ll want to discuss with your teenager include:
- Annual fee
- Interest charges
- Late payment fee
- Foreign transaction fee
- Balance transfer fee
- Cash advance fee
- Over-the-limit fee
- Returned payment fee
While these charges can be quite sizable, you don’t want to discourage your teenager completely from using a credit card. Rather, the point is to ensure that they form a healthy relationship with this form of money and know when and when not to whip out their card.
Explain that credit card debt is one of the main reasons for repairing your credit yourself. Be sure to emphasize the impact credit card debt may have on their credit score and prepare them for the eventuality of companies and salesmen trying to persuade them to apply for cards. While you’re at it, educate them on the intricacies of settling credit card debt.
Use this sample dialog with your teen to help explain the consequences of credit card debt:
- Parent: Hey, I wanted to talk to you about something important today. You know, as you’re growing up, there are a lot of financial aspects you’ll start encountering. One of those things is credit cards.
- Teen: Oh, yeah? What about them?
- Parent: Well, they can be useful, but they also come with responsibilities. When you use a credit card, it’s like borrowing money. And just like when you borrow money from a friend, you have to pay it back.
- Teen: Hmm, I guess I never thought about it that way. What happens if I don’t pay it back right away?
- Parent: Good question. If you don’t pay back the money you borrowed on time, the credit card company adds extra charges. It’s like a penalty. There are fees for being late, and those can add up quickly.
- Teen: That doesn’t sound good. What else should I know?
- Parent: Another thing is the interest. If you carry a balance, which means you don’t pay the full amount on your card each month, the credit card company charges you extra money called interest. It’s a percentage of the amount you owe, and it can really grow over time.
- Teen: Yikes, I didn’t realize it could get so complicated.
- Parent: Exactly, and that’s why it’s crucial to be careful with credit cards. It’s not free money; it’s a loan that you have to manage wisely. If you’re not careful, you could end up in debt, and that can impact your ability to do things like buy a car or a house later on.
- Teen: I see. So, what should I do if I get a credit card?
- Parent: First, only use it for things you can afford to pay back in full each month. Don’t treat it as a way to buy things you can’t actually afford. And always check your statement to make sure there are no mistakes or unauthorized charges.
- Teen: Got it. Thanks for explaining that, it really helps.
- Parent: You’re welcome. I know it might seem a bit overwhelming, but it’s an important part of being financially responsible. If you ever have questions about money stuff, feel free to ask.
Help Teach Teens Financial Responsibility Through Saving Money
Show Your Teen How to Develop a Savings Culture
There is no question that it’s important to teach teens about financial responsibility. We somehow touched on this in the budgeting section but since saving is such an important habit for a young adult to develop, let’s take a look at it in greater detail.
But before we proceed, let’s check your expectations: a savings culture isn’t something your kid will develop in days or even weeks because it takes financial discipline, which isn’t an easy habit to nurture. Even adults struggle with it, as evidenced by the fact that most Americans lack savings.
But no matter how challenging it may be, instilling a savings culture is an important part of preparing a teenager to be a financially responsible adult, and you can do that by doing the following.
You can also explain advanced topics such as teaching kids about stocks so once they do save, they can invest and grow money.
Explain the Difference Between Wants and Needs
The first and most critical step in teaching a teenager the importance of saving is to help them understand the difference between needs and wants. If you’ve already talked to them about budgeting, this is your chance to explain why some items in their budget are prioritized over others when allocating expenditures.
Put simply, needs are things that we all can’t live without. Typical examples include food, clothing, shelter, and water. In modern society, that list may also include electricity and education. As for the wants, they’re luxuries we can do without.
When talking to your teen about needs and wants in the context of saving, emphasize that they should sometimes learn to sacrifice their wants to save money. This way, you’ll instill financial discipline early on, an important trait of a great saver.
Provide Savings Incentives
Simply talking about the importance of saving isn’t enough. You need to offer financial incentives to motivate your teen to nurture this habit. Think of it as the equivalent of an employer’s matching program, only this time you’ll be motivating your teen to save.
For instance, if you’ve set a sizable savings goal for your teen of say, $500, you could offer to match half of what they’ve saved towards that goal at the end of the agreed period. Alternatively, you can set up several savings milestones for the same amount. For example, you could jointly agree that for every $100 they save, you’ll give them $50 as a bonus.
Set Up a Place for Your Teen to Save
One way to go about this would be to set up a savings account for your teen at your bank of choice. Having an account at a bank is a great way for them to learn about banking and things such as savings and checking accounts. They may have questions such as what are starter checks and CD’s. They can learn about these financial tools while having a savings account at a bank.
If that’s off the table, you can set up a savings jar. Either way, you’ll want your teen to have a place to stash their savings, preferably one where they can track their progress.
Set Realistic Savings Goals
To a teenager, it can seem pointless to save money without a specific goal. But while setting savings goals is important, what’s more critical is that you make them realistic and achievable. In other words, your teen’s savings goal should be set with how much they earn (whether from allowances or a job) in mind. This way, it won’t be too hard that it discourages them.
It also helps to break down the main target into small, manageable bits. For instance, if the main goal is $50 and your teen makes $10 weekly, help them determine how much they’ll need to save each week and how long it would take them to save the $50 they need at that rate of saving.
Become Your Teenager’s Creditor
One of the main principles of saving is to live strictly within your means. If your teen insists on buying something and doesn’t want to wait until their savings add up, acting as their creditor can be a great way to demonstrate the value of saving.
For illustration, let’s say they want to buy a game worth $100, and they’ve only saved $30. As their creditor, you can lend them the remaining $70 on condition that they’ll pay you back from their allowance with interest.
The lesson here would be that while they can get instant gratification by borrowing money to make a purchase, they’ll end up paying more and damaging their financial health simply because they couldn’t wait for their savings to add up.
Explain How Banking Works
Consider explaining banking concepts to your teen. These will be important topics that they will need to know about such as what to do when you face a debit card declined error code along with other issues. At some point they may need to know about money orders. Be sure to explain how they work and how to buy money orders with gift cards if they have no cash on hand.
Final Thoughts
That concludes today’s discussion on how to teach teens financial responsibility. Hopefully, you’ll be able to use what we’ve covered in this post to teach your teenager about financial responsibility.
But before we round things up, understand that you need to set the right example for your teen to listen to anything you have to say about financial responsibility. Also, keep in mind that learning money management is a journey that requires patience from both ends. Your kid will make mistakes along the way, but how you use these teachable moments will make all the difference.
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