Your child is now a teen. Many parents never feel prepared. Young people at this awkward stage struggle to assert independence, explore peer relationships, deal with hormones triggering strong emotions, and experience crazy changes to the body. Yet despite the chaos, this is an important time to talk to your teen about money.
Why Should I Talk to My Teen About Money?
This topic may not seem as critical as drug and sex discussions, but most teens are sorely undereducated in this area. Only about 25% of teens understand anything about credit card interest, for example. Many college students carry several thousand dollars in credit card debt, and it is all too easy to twist an average credit rating into a bad one.
Without a basic understanding of money, poor habits may quickly lead to many "life difficulties" down the road, including problems trying for a car, house, and certain jobs.
What Topics Should I Cover When I Talk to My Teen About Money?
Discuss these concepts to give your teen a well-rounded understanding of financial fundamentals:
Money Sources
Ask your teen to write down any income they receive (and where it comes from) for the next month or two. There is no need to share the information — the goal is to help them understand its origins.
Help your teen recognize sources such as:
- Gifts
- Allowance
- Jobs
Talk to Your Teen About Money and the Benefits of Saving
Most teens have no idea how much a little bit of regularly saved money can add up over time, even when not invested. Provide examples, such as:
- Set aside $25 a month — save $300 in a year
- Save $50 per month — it will grow into $600
Developing a Basic Budget
Discuss ways in which your teen spends money. Help group types of spending by sketching out basic categories, such as:
- Food
- Clothing and Style
- Basic Needs
- Fun and Social
Establishing Good Credit
Eight percent of parents in this country have children with credit cards.
Discuss the risks and responsibilities involved with any credit card as well as the importance of maintaining a solid credit rating. Explain how the tempting idea of "I'll just put it on the card for now and pay for it with my next check" can be very difficult, if not impossible, to successfully complete.
How to Keep the Future in Mind
Learning to set even small goals can help teens focus on saving their money in productive ways. This helps teach self-control, feelings of accomplishment, and how these apply to non-financial situations as well.
Misconceptions
Unfortunately, teens often have unrealistic expectations:
- 43% of teens think they will pay off student loans by age 30
- 35% believe they can save $100,000 by age 30
- 66% expect to own a home by this age
Ask your teen what ideas they have about money and help them clarify misunderstandings.
My Teen Can Be Difficult — How Should I Talk to My Teen About Money?
Preparing yourself for a discussion may seem daunting. Keep calm, stay confident, and consider:
Talk as if Speaking to an Adult
Try speaking as though discussing money with another adult, rather than with a "parental" tone. Fostering a feeling of respect may encourage more attentiveness and interest.
Include Your Teen in Family Finance Activities
You do not need to share every detail of your own money situation, but let your child see you paying bills, for example. Ask for input on a family decision — "Maybe we could go to a resort hotel for the weekend if we save up a little money. How could we save a bit?"
Leverage the Power of Desire
When your teen inevitably approaches you about a new phone, discuss ways to save. Explore options such as a part-time job, helping people in the neighborhood, etc. The drive to get what they want can be a powerful motivator to develop good saving habits.
Hand Over Control
Instead of shopping for clothes with your teen, try giving them the cash and let them make their own decisions. Deciding quantity vs. quality and other factors will be great practice for handling a finite amount of money.
Talk to Your Teen About Money
Once your teen begins to learn how to reconcile spending with earning, create and stick to a basic budget, the importance of saving, and the long-term impact of credit, you will be proud of the solid foundation you have fostered.