Nov 27, 2023

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Father and teen talk about money management

Your teenager or young adult may be looking for their first job. And they’ll want to make more of their own financial decisions as their independence increases. Like many parents, you may worry about when to have a conversation with them about spending, saving, and good financial decisions.

One way to help your child develop a responsible approach to handling money is to talk about family finances. It’s important to talk about how they can spend and save wisely when you’re no longer holding the purse strings.

You want to instill habits like saving and tracking expenses for a basic budget. Also, you want them to be familiar with the financial landscape they’ll need to navigate when they head out on their own. For example, how can they use borrowing tools like credit cards, student loans, personal loans, and other forms of credit to develop a solid financial base and build a strong credit history?

Younger generations often prefer digital banking to checkbooks and tellers. Today, the intangible movement of money can feel more like a game than serious business. Your teen or young adult may want to rely on mobile apps and digital financial tools to manage their money. Talking about money can help them determine which apps are helpful and drive home the idea that money management is a critical skill.

Use these primary financial and money-management concepts to help your teen gain financial literacy. We’ve included resources to guide what can sometimes be a difficult discussion.

(If you have younger children, or simply want to practice basic concepts with your teen, check out Financial Literacy for Kids. We’ve got ideas and activities you can use to help get them started on the right track.)

Table of contents

How to teach your teen money management

Whether your teen earns a paycheck with a part-time job or relies on an allowance, help them learn to align their spending with their income. The first step may be discussing the idea of a personal budget.

That first paycheck can be an eye-opener. They’ll see deductions for taxes and other withholdings and quickly learn what the terms “take-home” or “net” pay mean. It will be helpful to walk them through the various elements of a paystub.

Before they make too many plans for their new-found wealth, discuss which of their regular expenses you expect them to cover or contribute to, such as gas for the car or their mobile bill. This will help them learn how to budget for ongoing expenses while still enjoying the freedom of having their own money.

Even before your teen has a job, you could start them with a pre-loaded debit card, or debit card attached to a checking account. Review transactions and balances together on a regular basis. When it’s time for them to reimburse you for any agreed-upon expenses, a person-to-person payment app can make both requests and payments simple and provide an immediate digital trail.

How to help your teen learn to save

It’s not uncommon for young people to struggle with delayed gratification. Whether money comes to them in the form of an allowance, a gift, or that first paycheck, they may be tempted to spend it all.

While that first piggy bank is likely long gone, you can keep the topic of saving relevant by sharing some of your own savings’ triumphs; maybe you put aside money for your first car when you were their age, or earmarked savings for the family trip you took together over spring break.

The message for your teen is that with the commitment to “pay yourself first” from every gift or paycheck, even small amounts will add up, and can set them up to achieve financial goals.

The goal is to show how a consistent commitment to saving may give them the freedom to make desired purchases or say yes to a can’t-miss opportunity, like concert tickets or joining their best friend on vacation.

You can also use examples from your own life to show them why it’s important to set aside savings to cover unexpected expenses like a major car repair. And it’s never too soon to explain the importance of building a nest egg, even if financial goals like college, buying a home, or saving for retirement feel far away for your teen.

How to build credit as a teen

Teens and young adults who learn how and when to use different forms of credit could be well-positioned to make good money decisions. This may help them build a strong credit history. That could serve them well when they’re ready to make a major purchase.

Have conversations about how teens can build credit. Their first brush with credit may come in the form of overdraft protection on their debit card. While access to such funds can be a lifeline in an emergency, it’s important to help your teen understand the interest charges and any additional fees. You will also want to encourage them to check their account balance regularly.

Your young adult’s credit health could play a part in helping them achieve important goals–such as paying for a car to get to that first job, a college education, or even a first home–as well as allow them to pay for major or unexpected expenses. It’s critical, for example, they understand the difference between good debt and bad debt, the terms of any loan, and how to identify the best product for their needs.

Even when they are too young to apply on their own, credit cards could help teens build credit if you are willing to add them as an authorized user to your account.

How using credit responsibly could be vital to achieving your teen’s goals

Whether or not you have a credit card account, be sure to explain this form of credit to your teen before they start receiving card offers in the mail.

A credit card could provide convenience, purchase protection, and an opportunity to build a strong credit history. It may also teach the importance of responsible behavior when using revolving credit. Explain that it’s wise to closely monitor their balances or to try to regularly pay off their card balance each month to avoid what could be higher interest charges than other forms of credit.

Explaining the language and basic uses of credit is also important. Start simple with some of the following:

  • An overview of loan and borrowing concepts, including the difference between fixed and variable rates, what an APR is, credit scores, and loan types
  • The importance of checking their credit report regularly and how to do it for free
  • Building an emergency fund early

Your teen’s financial literacy means peace of mind for both of you

As your teen approaches adulthood, one of the best steps you can take as a parent is to successfully prepare them to launch their credit journey. Part of the process is helping them gain basic financial literacy and form good money habits. And while it may be uncomfortable, consider sharing some of your own financial journey, even if your track record is less than perfect. Your transparency could provide a powerful lesson.

If your young adult leaves home with a commitment to saving consistently, managing a simple budget, understanding credit, and using it wisely, they’ll have a strong head start on creating financial health.

Still concerned about how to get started giving your young adult financial advice? You could start with just one simple rule of thumb: 50/30/20. Teaching them how to balance expenses, spending, savings, and debt could help guide them successfully towards a healthy financial future.

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