While state education departments heap standardized tests on high school students covering the courses they’ll need in college, few states require students to study a subject that they’ll need in life. Only 17 states offer courses related to personal finance according to an annual survey conducted by the Council for Economic Education.1 Students who are unaware of the basics like budgeting and debt are subject to taking on unsecured loans while young that may follow them for the rest of their lives.
As a parent, it's important to consider instructing your kids at an early age about how to manage their personal finances. Parents can also offer their kids opportunities to learn how to handle money and save for their future on their own.
For additional perspective, I recommend reading Ron Lieber's The Opposite of Spoiled. As the personal finance columnist for The New York Times I feel he provides well-researched, accessible advice on the subject of money and kids (of all ages, not just teens). Best of all, he allows for differing opinions so you can create an approach that works for you and your family.
1. Give Your Teen Money of Their Own
The first step may be to give them money to manage. Let them take on a job after school when they are old enough, and maybe cut back on the extracurricular activities to make room for it. If that isn’t a good arrangement, give them an allowance, but resist the urge to bail them out when they’ve spent it all for the week. Some grocery stores will hire kids as young as 14 if the state labor laws allow. Sometimes they will have to wait until they are 16 and old enough to drive.
Another option is to open a separate bank account for your teen. This way as a joint account holder you will be able to provide guidance and oversight to your teen in how to manage money. Many banking institutions now offer teen checking accounts with no fees and free debit cards.
2. Budgeting for Beginners
Once kids have their money, there will be more ways to spend than you may realize. They can get coffee on the way to and home from school. The games they play encourage micro transactions, where kids spend a few bucks at a time to advance faster in the game. These small purchases can add up quickly if the kids aren’t paying attention. It’s a great opportunity to teach them about budgeting.
Kids can keep an old-fashioned ledger, use dad’s clunky PC software or sleek apps for mobile computing. They may learn more about budgeting from having to manually enter debts and expenditures; however, the apps will automatically track some spending depending on the method of payment.
3. Make them Pay for the Good Stuff
The costs of raising a child grows each year, up to $14,000 per year according to the Department of Agriculture.2 While this covers some basics – room and board – that figure also includes transportation expenses, childcare and health care. Does it also include video game systems, cell phones and a first car?
Perhaps teens should pay for, or help pay for, big-ticket luxury items like an expensive phone or gaming laptop. Doing this will help your teen learn how to set a financial goal. Learning to save now for something they want will help them learn to set aside money for retirement or college for their own children when they are on their own. They can use their newfound skill in budgeting and tracking spending to see how they’re doing.
4. Investing at an Early Age
Learning how to save can lead to kids learning about investments. Kids should learn about safer investments like bank savings accounts or Roth IRAs or playing the market. You never know, your kid may be a financial wiz who discovers the future version of Amazon or Apple, invests the fortune he or she earned from the local fast food joint and becomes a millionaire.
If you do decide to involve your teen in the more complicated and volatile investment methods, it’s a good idea to get advice from a financial advisor. They can even give your child a beginner’s lesson in sound financial strategies that could end up saving money for your entire family.
1 2018 Survey of the States; Council for Economic Education https://www.councilforeconed.org/wp-content/uploads/2018/02/2018-SOS-Layout-18.pdf
2 Department of Agriculture Expenditures on Children by Families Annual Report https://www.cnpp.usda.gov/expenditures-children-families-annual-report