Financial literacy is an important part of being a successful adult. Here are 14 financial lessons your teens should understand before they leave your home!
I don’t know about you, but I don’t remember any in-depth financial lessons geared towards teenagers at my high school. Sure, we talked about checkbooks and credits cards once or twice, but lessons on budgeting, saving for retirement, investing, and how to understand and manage money, in general, were lacking.
You can’t expect your teenager to be fully equipped for life (especially financially) if you send him off to school and never discuss what he learns or how to apply it to real life.
Involve your teen in numerous financial discussions over the entire course of his young life so that he’s prepared to make solid financial decisions when he heads out on his own for the first time.
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Here are some financial lessons for teens that they should learn from you:
1.How to make and keep a budget
First, you have to start with basic budgeting fundamentals. Sit down with your teen and show her step by step how to create a budget. Then, encourage her to continue every month and keep talking about it.
Related: Budgeting for teens: an easy guide
2. What percentage of that budget to save, spend, and give.
There are a lot of different ways to approach this. One method is the 50/30/20 rule – spend 50% on needs, 30% on wants, 20% to savings. Tell him to find a way to save and give some money every month.
3. Understand checking and savings accounts
Include discussions on things like:
- which bank to choose
- how to read your bank statements
- why you should read through each of your statements each month
- how to balance your checkbook (and do this regularly!)
4. Know how to read and understand financial statements
Your teen should know how to read and understand these types of statements:
- credit card
Your teen should know how to read and understand the different parts of her personal financial statements, especially parts of the statement like interest rate and balance due.
Make sure that she checks her credit card and bank statements each month to verify all of her transactions to prevent theft or illegal transfer of money (or just plain bank error).
5. Know how to access and manage all accounts
Teach your teenager how to access all accounts in person at the bank and online. He should know how to keep his account numbers and passwords safe.
6. Know when to start saving
Encourage your teen to start saving at least a little bit of money each month. Also, discuss the need to have an emergency fund in addition to a regular savings account.
Related: How to Set up an Emergency Fund
7. Start saving for retirement early
Once your teen starts working regularly, encourage him to open an IRA and start saving for retirement. Tell him to always take up his employer’s offer to match savings – this is free money! Talk about compound interest and why it’s important to start saving early so the final amount is greater at retirement.
This is also a great time to start investing!
8. Help your teenager understand wants vs. needs
When you’re young it’s sometimes hard to delay gratification, but talk to your teen about legitimate needs vs. wants. Discuss the importance of meeting needs first and finding a way to include some wants in her budget. Talk about how to save up for wants and the satisfaction this brings.
One thing that has helped me is to have some “fun money” set aside every month. For many years, my husband and I had $40 set aside each month for fun spending money. For me, this money usually went toward getting a coffee, having a treat, or buying something small that I wanted. My husband used his to buy snacks at work or go out for coffee or lunch with his co-workers. Many months I didn’t spend the whole $40 and whatever was left went back into savings.
If you are too strict and your teenager doesn’t get to spend any money on fun whatsoever, he can really get discouraged with budgeting in general.
9. Understanding what debt is and how to avoid it
There are all kinds of ways to get into debt (loans, credit cards, mortgages, etc.)
Basically, debt comes from buying something that you don’t have the cash to pay for upfront right now.
Talk about ways to avoid or reduce debt in the long run.
Related: How to Avoid College Debt
Related: How to Pay off Debt Fast
10. Understanding how credit cards work
And why to avoid using them!
Credit cards are another form of debt but I think they can be more dangerous than other forms and deserve another (or several) separate discussions about how and why to avoid them (and how credit card debt can get really ugly, really fast!)
11. Understanding insurance
Financial responsibility includes understanding the different types of insurance and which types to get (and when and why.)
Make sure to have this discussion with your teen.
12. How to set a financial goal and make a plan to reach it
Some goals your teen might have in mind:
- buying a car
- buying a house
- attending college
- going on a fun vacation
- starting her own business
13. How to live within his means
Creating a budget and sticking to it will help your teenager learn to live within his means. Your teen may find it tempting to buy the latest electronic gadget or item of clothing to keep up with his peers.
Teach him ways to be frugal – how to shop for bargains and still stay within the budget. Living within your budget means avoiding long-term, heavy debt!
14. How to be an entrepreneur
Finally, just because your teen is not an adult yet, doesn’t mean she can’t start a small business. Does she have a particular skill or interest that she can use to turn into a side business? Be creative!
Make sure you teach these 14 financial lessons to your teens before they leave home. Prepare them for a financially successful life! I’d love to hear your thoughts or ideas! Please share them below.
Related: Money management tips for teens
Check out these 2 great books about raising money-smart kids:
Recap: Financial Lessons for Teens
- How to make and keep a budget
- What percentage of that budget to save, spend, and tithe.
- Understand checking and savings accounts
- Know how to read and understand financial statements
- Know how to access and manage all accounts
- Know when to start saving
- Start saving for retirement early
- Help your teenager understand wants vs. needs
- Understanding what debt is and how to avoid it
- Understanding how credit cards work
- Understanding insurance
- How to set a financial goal and make a plan to reach it.
- How to live within his means
- How to be an entrepreneur