Money Management for Teens: Important Lessons to Teach Your Kids

teens baking in the kitchen discussing money management

Key Takeaways

  • Start teaching budgeting basics like tracking income and expenses. Have them use a budgeting app or share your own budget.
  • Show real-world living expenses by having them sit with you to pay bills. Distinguish between needs and wants.
  • Explain the importance of saving early and "paying yourself first". Set up automatic transfers to a savings account.
  • Educate on building credit responsibly. Explain how interest and debt work. Credit cards and loans are not free money.
  • Financial knowledge is a gift as important as cash gifts or paying expenses. Let them practice money skills now while stakes are lower.

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. If they're working a part-time job, then they likely have some real-world context for the lessons you share.

Teaching kids about money when they're young gives them a chance to learn by doing and sometimes 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. 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. 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 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. 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 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 teens that credit can be a useful tool, but it can also hurt their finances.

The interest payments on loans or credit card balances can dig a deep hole that's difficult to get out of. Your kids should understand that credit cards and student loans are not free money, and there 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, which isn't a bad thing. 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.

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