Guiding a teenager through the basics of money management can set the foundation for strong financial habits throughout their college years and adulthood. Each milestone a child reaches, such as getting a first job or a first car, can be an opportunity to coach him or her financially.
“These milestones align nicely with a four-year plan, which I encourage parents to commit to completing with their teens,” says Joye Hehn, Community Financial Education Manager at Regions Bank. “Each year, management responsibilities increase and build upon the experiences of the previous year. Don’t worry if you don’t have four years; you can condense the concept, if needed.”
Whether your teenager is just starting high school or is prepping for the SAT or ACT, here are some steps to help you guide their financial development throughout high school.
Freshman Year: Learning the Basics
Establishing good financial habits can begin with an allowance. Earning a weekly allowance through chores helps teenagers understand the value of money. Parents also can teach a child to track spending and saving habits by writing down transactions in a notebook and reviewing it weekly. A teenager not only realizes how he or she is spending or saving money, but also learns the concept of cash flow.
“Many young adults leave home without an awareness of how much money it takes to maintain the same lifestyle provided by their parents,” says Hehn. “Seemingly trivial items, like a cup of gourmet coffee or a movie ticket, can be budget busters.”
This is also a good age to encourage your teenager to set savings goals and to donate to valued causes.
Sophomore Year: Building a Budget
If your teenager is receiving an allowance, switch from a weekly payment to a monthly payment to teach him or her to make the money last for the month. Creating and using a monthly personal spending plan that includes short-term and long-term savings goals reinforces responsible spending. Also discuss the concept of “needs” versus “wants.”
If budgeting is a challenge, introduce the “envelope system,” in which money is set aside in envelopes dedicated to spending, saving (short-term goals), and growing (long-term goals).
Junior Year: Taking on More Responsibility
For teenagers receiving an allowance, consider paying a six-month allowance to reinforce budgeting skills. Budgeting can be tough at this age because teenagers will need to balance setting aside funds for upcoming expenses with discretionary spending.
If your teenager’s spending extends beyond their current financial means, discuss the possibility of him or her getting a part-time job for supplemental income. “First jobs can definitely provide that ‘aha’ moment about the value of hard-earned money,” says Hehn.
If teenagers make financial mistakes, learning from such experiences can be powerful. It’s also important for parents to be open to sharing some of their real-life situations about a poor financial choice and lessons learned from it.
When your teenager is ready to take on additional responsibility, this can be the right age to open a first checking account and learn to pay for transactions with checks. Starting off your teen with a checkbook, rather than a credit or debit card, can help them learn and master concept related to money such as strategically managing and balancing their expenses. And with access to their expense history, you can help guide your teen through any challenges or questions they may have.
Senior Year: Learning About Credit
For teenagers who have grasped cash flow, budgeting, and managing and balancing a checking account, it may be a good time to consider paying the whole year’s allowance in one lump sum. “Hopefully by now the money concepts experienced in previous years have grown into habits,” says Hehn.
If your teenager is ready to take on more responsibility, transitioning to using a debit card allows your teen to handle more real-time transactions. A prepaid debit card could help reinforce spending within one’s means. Parents may want to hold off on letting a child obtain a credit card at this age. However, they should discuss how to establish good credit and the differences between good debt and bad debt.
If your teenager asks to borrow money, consider lending it and clearly outline when it’s expected to be paid back. This can give him or her a sense of how to pay loans on time each month.
“If your teen is successful at managing money for a year, then you can feel good about their money management skills when they leave the nest,” adds Hehn.
Maintaining an Open Dialogue
Much like learning to swim or mastering a new language, exercising these lessons in real time is fundamental. Parents should be open to discussing money, budgeting, and setting up solid financial habits and maintaining an open dialogue with your teen regarding their finances. “Having open dialogs about money will set you up as a trusted resource as your child’s financial decisions become more complex,” says Hehn.
Is your teen ready to take their next financial step? Make some time in your schedule to discuss strategies for saving.
