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Money Management for Teens: Important Lessons to Teach Your Kids

Personal Finance
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teens baking in the kitchen discussing money management

As your teen starts picking up summer jobs and earning extra cash while in high school, teaching them about money management could help them understand how to make the most of their wages. Here's some information to help you guide your teen toward smart financial decisions.

The Importance of Money Management for Teens

Smart money management habits will serve your child well when they head off to college and are making more of their own decisions. Additionally, if they're working a part-time job at this age, then they likely have some real-world context for the lessons you share.

Teaching kids about money when they're still in high school also gives them a chance to learn by doing, which sometimes means failing. Though it's hard to watch from the sidelines as your kid makes a misstep, it's better for them to learn from these experiences now when they still live at home and have more of your parental guidance to help them recover and make better choices next time.

Plus, good habits take time to develop. The sooner your teenager puts these ideas into practice, the more time they'll have to develop them while under your wing.

Key Money Management Lessons

Budgeting Basics

One good place to start is teaching your teenager budgeting techniques and tips. You could suggest an app for them to use or share your own budget with them. And if you don't have a budget, this may be a good time to start one. Kids learn by watching, so it's good to set an example for them to follow.

Living Expenses

You might want to show your teens real costs in the real world. You could invite them to sit with you while you pay bills so they can see not only what "living expenses" consist of, but also how much they actually cost. Distinguish between needs and wants, and discuss the importance of prioritizing fixed costs — such as rent or a mortgage — over vacations and meals out.

Saving Early

Your teen should understand cash flow and how to track their spending so they know where their cash goes. You may want to consider teaching them the lesson of "paying yourself first," or saving a certain percentage of what you make when possible.

With automated transfers from a checking to a savings account, your teen could start building a saving habit early on. This will help move the funds before they know they're "missing" that money since it isn't in the same pool of money they use for expenses and discretionary spending.

Building Credit

You also might want to consider educating your teen on credit. You don't need to hand them a credit card, but instead, you could explain how credit works — and that there's a difference between "good" debt like a mortgage and "bad" debt like credit card debt.

Teach your teen that credit can be a useful tool, but it can also hurt their finances if they charge or borrow more than they can afford to repay. The interest payments on loans or credit card balances can dig a deep hole that's very difficult to get out of, and your kids should understand that credit cards and student loans are not free money, and that they are obligations that must be repaid with interest.

Setting Your Kids Up for Successful Financial Futures

Many parents want to simply make life easier for their kids by providing cash gifts or paying for big life expenses like college — and that's not necessarily a bad thing. But before you hand over money or pay your teen's way, it's also great to give the gift of financial knowledge that they need to help make smart choices with money.

After all, they'll soon be earning their own living, and the world is full of tough choices about managing money and priorities. Teaching them small but memorable lessons today, when the stakes are low and there's more room to learn from mistakes, could set them up for financial success later.

IMPORTANT DISCLOSURES
Information provided is general and educational in nature, and all products or services discussed may not be provided by Western & Southern Financial Group or its member companies (“the Company”). The information is not intended to be, and should not be construed as, legal or tax advice. The Company does not provide legal or tax advice. Laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or completeness of this information. Federal and state laws and regulations are complex and are subject to change. The Company makes no warranties with regard to the information or results obtained by its use. The Company disclaims any liability arising out of your use of, or reliance on, the information. Consult an attorney or tax advisor regarding your specific legal or tax situation.