Parenting teenagers can be challenging, and money issues often fall to the last item on your list to discuss with them. However, their newfound independence and reliance on peers make this the perfect time to talk about money management. Here's how to equip them with the knowledge and skills to successfully manage their money for life.
Related: Guide to financial literacy for kids
Use teen development cornerstones to discuss money issues
Adolescence is a developmental period characterized (along with the many good traits) by risk-taking, poor decision-making, and a push to be independent. As parents, this is not very comforting, but you can use these normal teen behaviors to bring home some key messages about responsibility.
In terms of money management, this means guiding your teens without overdoing it. Teens often learn the hard way that not being responsible with money has consequences for them. When they run out of money, instead of giving them lectures – or handouts from the bank of mom and dad – start a conversation around choices and potential solutions.
Ask what they feel they could have done differently and brainstorm ideas around how to safeguard themselves from this happening again. This could be through budgeting, tracking, and recouping some of their money through earnings.
Give teens more financial freedom
Teens need financial freedom to learn how to manage money and understand the fundamentals of using debit cards, ATMs, and spending on and offline.
This enables them to choose how to spend their money, while the accompanying app allows them to track their spending and set limits on single purchases and ATMs to ensure they don't overspend.
Let teens know where money comes from and, most importantly, how to earn it
It's also crucial that teenagers recognize the value of money and understand that it's not an unlimited resource. The best way for them to learn this is by managing their allowance and seeing what happens when they spend more than they can afford or splash out without thinking.
"With 75% of children agreeing that financial education will help them in their future career, our report findings show how empowering children to earn money from a young age could have a lasting positive outcome on equality and job opportunities in the UK."
Louise Hill, co-founder, and COO of GoHenry
Hand in hand with this comes earning. Our latest Youth Economy Report shows that 78% of young people in the US believe that earning their own money is important – and 50% of US kids say that they already 'work' for their allowance.
Beth Zemble, VP of Education, GoHenry, agrees and says, "As teens develop and begin to make financial and money management decisions to reach their own goals, the need to include money that they have earned (rather than been given). This helps kids to understand both the value of earning and the value of money by getting them to appreciate the connection between work and earning."
If your teens are too young to get a job, brainstorm ideas for how they can earn extra money from helping out at home (teens are responsible enough to babysit for younger siblings, be responsible for pets, and even help with some DIY).
Talk about needs versus wants
Another aspect of money management is to discuss needs versus wants using real-world examples such as:
You might think you need new sneakers, but if you have three pairs that fit, what you mean is you want sneakers. However, if you have grown out of sneakers, then you need sneakers.
Giving your kids an allowance or offering them opportunities to earn money with extra tasks around the house can also be an excellent way to teach needs versus wants, as well as how to weigh up their purchases, and think before they buy something.
Ensure you lead by example
Just like younger kids, teens watch and observe you all the time. Tell them not to gossip and then do it yourself, and they'll soon pull you up on it. The same goes for money messages. If you tell them to budget, track their money, and not overspend, ensure they don't see you doing the opposite.
Says Beth Zemble, "Teens develop attitudes which the adults in their lives inform, about concepts like frugality and self-control."
This means you must be aware of the unconscious messages you send out around money management. Complaining that you didn't save enough money for bills, overspending when you feel stressed, or not having enough for unplanned expenses won’t help teens to make smart financial choices.
Help teens understand savings and set goals
Teens who are encouraged to save are far more likely to continue saving as adults. From your teen's point of view, give them plenty of reasons to save by not always stepping in to pay for what they want. Encourage them to set up savings goals on the GoHenry app, whether they are looking to save up for a new pair of sneakers, tickets to a concert, or a new phone.
At the same time, take the time to talk about how not all savings are made equal. Explain how investments and compound interest (earning interest from interest) work, as this will help your teen get to grips with the benefits of saving money.
Show teens the money basics
Learning to manage your money isn't easy, so while your teen may understand spending and saving, they will need help with the following:
- Budgeting. Help create a weekly/monthly budget by using real-life examples and not just theory, i.e. money coming in versus money going out.
- Tracking expenditure. Help your teen understand the importance of tracking their spending to keep to their budget. The GoHenry app can help them see this in black and white.
- Borrowing and interest. At this stage, they may not be able to borrow money from financial institutions, but if they borrow from you (or friends), make sure they pay it back.
- Being a critical consumer and thinking before they buy. Not just to stop unwanted purchases but also to search for discounts and better deals.
- Show them money management tools like Money Missions on the GoHenry app. Money Missions allows teens to learn about money basics and money management with videos and quizzes.
Focus on the long-term goals
Saving money is a great habit to get into, but it's important to focus on the long-term goals too. Explain to your teen how money management is a really good skill, especially for adulthood. For example, if they want to buy a house one day, they will need to save up for a deposit. Or, if they want to go to college, they will need to start thinking about how they will finance their time in education. This creates a more meaningful approach to savings rather than focusing on short-term goals (such as saving up for a new game).
So, encourage your teen to start thinking about their long-term goals and how they can start saving for them now. You can help them understand the importance of compound interest and how it can help them reach their goals sooner. You could also offer to match their savings or help them set up a dedicated savings account for their long-term goal.
Explain the concept of giving
Think about the lessons you want to impart around giving. Forcing a teen to give money won't work, but helping them find causes they feel strongly about and understanding the problems on a deeper level, may encourage them to start donating.
Allow teens to make money mistakes
Finally, we can't learn if we aren't able to make mistakes – even though it can be frustrating when your teen does the very thing you warned them not to do a hundred times. However, what's important is that they learn from their money mistakes now, so they have the right skills for the future when handling their student loan, earning a salary, paying a mortgage, and more.
Learn more about GoHenry and how Money Missions can help teens to better understand money basics and money management.