Whether messaging on Snapchat, sharing TikToks, or laughing hysterically over everything, kids and teens love their friends. Yet in a recent survey of our members, one area is problematic—money! 83% of teenagers said a friend owed them money, and 59% said they're owed money every month.
Unfortunately, in 17% of these cases, teens said they never got the money back. This is one of the many reasons why teaching your child to handle financial situations with friends is so important. Here’s how to help them navigate the inevitable woes of money and friendships.
Why money matters in friendships
Whether we like it or not, money causes multiple issues within friendships. It influences everything from expectations to gift buying, spending, and even the activities you can do together.
Research by The Money Advice Service reveals that by the age of seven, most children can recognise the value of money and understand the link between earning money and income.
This means most children typically start to observe differences in possessions and lifestyles among their peers or families around this time. These observations often come from daily experiences, such as seeing the types of toys friends have, the homes they live in, or how they talk about holidays or activities.
Money also becomes even more prominent in the pre-teen years because it shapes social experiences, affects self-esteem, and introduces complex pressures around spending and buying.
Louise Hill, CEO and co-founder of GoHenry, agrees, “Whatever your child’s age, discussing how some people will always have more money than others helps children understand the world and introduces crucial financial literacy concepts like income, budgeting, and earning. It also helps to open up conversations about the importance of not comparing yourself to others, empathy and managing your money wisely.”
Encourage money conversations at home
One way to help your child is to have regular conversations about money at home. This can be crucial in helping kids be open and honest about financial matters with friends. Making money a normal conversation helps children understand basic concepts like budgeting, saving, and spending and empowers them to stand up for their financial choices with friends.
Kids learn it’s okay to tell a friend they can’t afford something without feeling ashamed or say no to lending money without feeling guilty. Conversations with you can also help kids understand that everyone has different financial situations and values, and this awareness can promote empathy and reduce feelings of peer pressure.
Financial Coach Simone Gnessen, founder of Wise Monkey Financial Coaching, agrees: "Many people struggle with the day-to-day management of money as money is such a taboo subject in society and even in the home. Polls regularly show that money is a topic dogged by fear of judgement.
Many of us have internalised the belief that financial struggles reflect failure, so we avoid seeking help or voicing our anxieties, which makes life even harder.”
Friends and FOMO
One stumbling block with money and friends is that fitting in and peer approval dominate the preteen and teen worlds. As a result, your child may feel judged on their appearance, possessions, and ability to attend events, leading to insecurity and fear of missing out (FOMO).
Social media, advertising and the internet also play a role in this, as children are exposed to images of lifestyles, trendy products, and influencers promoting a - typically - luxury way of living. This can heighten the importance of money, and children can feel pressure to present a specific image through clothes or experiences.
Help your child understand that they should never feel pressured to spend beyond their means to keep up with friends or social media trends. Explain that what works for one person may not be feasible for another.
It can help to share stories about your experiences with peer pressure related to spending, highlighting times when you prioritised your budget over keeping up with others. This can create a sense of understanding and relatability, reinforcing that it's normal to feel tempted to spend but that making wise financial choices is ultimately more rewarding.
Anita Cleare, founder of the Positive Parenting Project and author of How to Get Your Teenager Out of their Bedroom, agrees, “Wanting to fit in with their friends is really normal. Younger teens, especially, often want to have all the same clothes as their peers. The good news is that as they mature, most teens become more confident about making their own choices and less worried about being different. In the meantime, rather than telling them not to care what their friends think, clarify what you will provide and what they have to cover from their pocket money. This will also encourage them to budget and save and even to look for opportunities for extra income.”
Lending and borrowing money
Finally, teach your child how to deal with lending and borrowing money between friends because if a friend doesn’t pay the money back, your child will have to ask for it, which can feel awkward and potentially cause a rift. Likewise, friendships can break down if your child borrows money and doesn’t return it.
Explain that if someone borrows money, they have a right to ask for it back and that in adult life, any money borrowed from a bank in the form of a loan or mortgage always has to be paid back. Likewise, they should never borrow money if they don’t have the means to repay it. Again, use the example of the repercussions from a bank in terms of interest and fees if you don’t pay back the money you owe.
Of course, it’s not easy to ask a friend to pay you back, so here are some tips to pass on:
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Be direct and honest: Tell a friend you need the money back, and when you need it by,
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Be understanding: If your friend struggles to repay you, offer to work out a payment plan to give them some extra time.
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Be polite: Your child might be upset and annoyed that a friend has put them in a position to ask for money back, but advise them to stay polite.
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Learn from experience: Reassure your child that it often takes something challenging to make them adapt to how you do things.
If your child frequently lends money to friends or shows excessive generosity, it's also crucial to investigate the underlying reasons for their behaviour. Start by having a chat to see why they struggle to say no. Are they worried about upsetting their friends or perhaps seeking approval and validation through their generosity? Understanding these motivations will help them navigate their relationships more effectively.
Ultimately, while kindness and generosity are traits we all want our children to have, children need to learn about financial boundaries in friendships. Without these, they may place themselves in difficult situations.
This means knowing how to prioritise their financial well-being and being clear when they can’t afford to lend money or feel uncomfortable with a request. Setting financial limits ultimately gives kids and teens control of their money, boosting their confidence and independence and preparing them for future financial decisions.
