A Guide to Personal Finance for Teens

Depending on where you live, personal finance for teens may or may not be a part of a teenager’s learning curriculum before leaving high school. You may have tried to teach them the value of money by instituting weekly chores and allowances, but research shows most teenagers in the U.S. –and even across the world – understand very little about the wide world of finances that awaits them as future college students and young adults.

Financial literacy ratings for countries around the world.

To help you and your teenager navigate the financial universe, we’ve compiled a comprehensive guide that covers everything from their first summer job, buying their first car, and investing their extra cash.

How Can They Earn Their First Paycheck?

The first step in discovering if your teenager is ready to learn good financial habits is preparing them for their first job. While they might be motivated to earn extra spending money or gain independence, teenagers can learn valuable life lessons and work experience from their first job. Not every company may be willing to hire teens without substantial resumes, but summertime can be a great time to join the workforce.

The road to employment for teenagers isn’t always easy, and you may have to teach them the value of persistence as they navigate the ins-and-outs of applications, interviews, and rejection.

Another important opportunity for a discussion may arise when your teen begins to travel to and from their place of employment, and the cost of commuting becomes a factor. Teenagers may ultimately have to weigh the value of a job that pays better but takes more time and money to commute to versus a job that might pay less but is near where they live.

Suggestions for questions your teen could ask at the end of a job interview.

Tip: Hold a mock interview with your teen. Teach them how to properly answer questions that an interviewer might pose, and let them ask questions at the end of the interview. When the time arrives for their first job interview, they should feel more confident and prepared.

What Do They Do With Their Earned Money?

Once your teen lands his or her first gig,they’re well on their way to earning that first paycheck. The logistics of that may leave them with a few questions, though, like where (and how) to deposit that money so they can save or spend it.

There are two primary options to consider when helping your teen open his or her first checking account before turning 18.

  • Joint Accounts
    • Your bank may offer a student account that your teen may open in his/her name alone or as a joint account with you. With a joint account, both the teen and parent have access to the funds, as well as the details on how that money is spent. Depending on the options your bank offers, you may even be able to set up text or email alerts to monitor the balance and spending on your teen’s account.
  • Custodial Accounts
    • Slightly different from joint accounts, a teenager with a custodial account still technically owns the money that’s deposited into it, but they don’t have direct access to the money. These types of accounts can be useful when parents want to take a more hands-on approach to monitoring a child’s finances, but it may not be as beneficial as a joint account could be for teaching your teen independent financial management.

Definition of a joint account vs. a custodial account

Of course, you will also want to make sure they set a budget. Once they start earning a regular income, they may want to start spending it too. Helping them develop a budget is a critical aspect of personal finance for teens as it can help them establish sound spending habits. To assist them, there are a couple of solutions.

  • Apps
    • If your teen has a smart device, they may spend more time looking at it than actually communicating with you. Thankfully, you can use this to your advantage. Finance apps can help your teen monitor his or her spending to help make sure they’re staying within their budget. Regularly using a simple expense app may help them stay on top of how much money they have. More sophisticated apps can help them monitor recurring bills and revolving accounts like credit cards in the future.
  • Making Financial Contributions
    • Your teen may not have any bills today, but that is likely to change in the future. Whether it’s their first credit card or a car payment, the money they eventually earn shouldn’t just be for spending on the things they want – it will likely also be for spending on the things they need. Help kick-start this idea by creating a bill-type scenario where teens contribute to their expenses at home. It may be their portion of the cellphone plan or even the gas it takes to drive them to and from work, but either way, it can help prepare them for the future.
  • Communicate About Their Spending
    • Having regular budget meetings can be a good way to keep a teen’s spending front and center in his or her mind. Regularly reviewing their finances together is a great habit for the future. If they get used to doing it when they’re young, they’ll most likely continue to do it into adulthood, even when you’re not looking.

Tip: Sit down with your teen and discuss how their new account will work, whether it is a custodial or joint account.

How Can I Teach Them to Save?

Of course, you can’t have a conversation about personal finance for teens without talking to your teen about saving. The idea may not initially seem cool, but solid saving habits can make a world of difference in the future. Beyond opening a savings account, there are plenty of ways you can help your teen earn more and save more along the way.

The benefits of starting to save at a young age.

  • Strive to Save
    • Teach your teen to deposit a percentage of their money each week into a savings account when their allowance or paycheck first hits their checking account. This can help generate good saving habits for the years to come.
  • Match the Money They Put Aside
    • Matching the money your teen puts in savings can be a good way to encourage them to continue the practice. It may also be an opportunity to prime them for future jobs that offer 401(k) savings matches.
  • Think Outside the Box
    • While your teen may have landed their first job at a local restaurant or grocery store, encourage them to also think creatively about the ways they could earn (and save) additional money. If they’re crafty, they could set up a website selling their art or wares. If they play an instrument or excel at a certain subject, then maybe they could offer to tutor other students for a small fee. Encouraging kids and teens to think like entrepreneurs won’t just give them a chance to earn some extra cash – it could also make them better problem-solvers in the future.

Tip: Open a savings account with a competitive interest rate and schedule regular check-ins with your teen on his or her payday to evaluate how much money is going into his or her savings account, and how much that interest is earning them on a daily or monthly basis.

Take It One Step Further

You’ve taught them to save –now go one step further and teach them how to increase their savings. Stocks, bonds, certificates of deposits (CDs) and real estate may be foreign words to teenagers today, but they can grow into serious opportunities for securing their financial future. Teaching a teenager to invest in the stock market could be as easy as encouraging them to buy a single share of a company they’re interested in or passionate about. Watching the value of that stock fluctuate over time might be a truly hands-on way to learn a little bit about investing. Some experts also recommend encouraging teens to open a Roth Individual Retirement Account (Roth IRA) to get them thinking about saving for the long term.

Definitions of a CD and a Roth IRA.

Tip: Set up a CD with your teen. If they’re trying to save for a big purchase (like a first car), a short-term CD can help reinforce the value of saving, as well as expand their capital and understanding on how other deposit products work.

Having your teen learn about finance also means learning about credit. That begins with a credit card – but which one to choose? Consider a Discover it card, where all the rewards you earn are matched, dollar for dollar, at the end of their first year—there’s no limit to how much they can be rewarded. Terms apply. Learn more here .

Legal Disclaimer: This site is for educational purposes and is not a substitute for professional advice. The material on this site is not intended to provide legal, investment, or financial advice and does not indicate the availability of any Discover product or service. It does not guarantee that Discover offers or endorses a product or service. For specific advice about your unique circumstances, you may wish to consult a qualified professional.

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