7 Things Your Teenager Needs to Learn About Money

Many teens enter college or the work force ill-prepared to manage money on their own. And young people know they are unprepared. According to a 2015 study from Junior Achievement and The Allstate Foundation, 32% of teens think their parents don’t spend enough time talking to them about managing money.

While some of the most basic concepts of financial education can seem obvious on the surface, they may not be at all clear to your teenage son or daughter. Here are a few basics you and your teen may want to review.

1. Everyone needs a budget. Be sure your teenager understands how your income influences the spending choices your family makes. Involve them in tracking spending and calculating the percentage of your family’s take-home pay that goes to rent or mortgage. What about a car payment? Groceries? Restaurant meals? Other? Learning to budget now will help them manage spending when they are on their own.
2. Cash? Credit? Debit? Teens should learn the difference between paying with cash, paying with a debit card and paying with a credit card. There are advantages and disadvantages to each payment method and different security considerations as well. Learn which method is best for different types of expenses and why. Get more info on deciding between debit or credit.
3. Money’s not free. As they move toward adulthood, teens must understand that borrowed money carries the cost of credit, and the cost can be substantial. Consider introducing the concept by making a small loan to your child for something he or she wants, and adding simple interest to the cost. For example, if he or she borrows $100 and pays it back in $10 payments, it will take 11 payments to pay off the debt at 10% interest. ($100 + 10% = $110 divided by $10 = 11 months.)
4. Spend / Save / Give. Young people may receive money from allowance, a part-time job, or birthday gifts. When considering how they will use their money, even small children can learn to consider three broad categories – spending, saving, and giving. If a portion of any money they receive is directed to each of these categories, they will begin developing habits for saving, managing spending, and considering others.
5. Careers. It won’t be long before your teenager chooses a college major or a career. While many students focus on their natural interests and aptitude, they should also factor in the future earning potential of their career choice. The O-Net website is a great resource for exploring different careers and typical salaries associated with each.
6. Cost of college. Does your teen understand how much it costs to go to college? Who will pay for it? Will they need a student loan? Have they looked into scholarships or factored cost into their choice of a college? Sit down together to explore the cost of tuition, on-campus room and board vs. off-campus housing, and other costs like books and activity fees. Research the various ways enterprising students have found to keep these costs manageable.
7. Investing. Believe it or not, teens love the stock market. It’s a great exercise to have teens research a company or a brand name they are interested in to see how the company’s stock performs over time. Make it interesting by giving them a small pool of money, such as $100, to invest and track progress.

Young people receive a lot of mixed messages about money from friends, the media, and elsewhere. You can help clear up that confusion by covering these basics. You, and they, will be glad you did.