When is it a good time to talk to your kids about money and finances?
“If you don’t teach your kids how to manage money, somebody else will.”
And that’s not a risk we want to take!
Some kids go their entire childhood with no clue about how money works. Why? Probably because their parents feel weird talking about it.
That just sets them up for the potential to make big money mistakes when they’re adults.
We’re always talking about financial literacy. And how we need more teen money lessons. So, how do our teens learn about money?
Teenage money management isn’t always a fun topic to broach with your 13-going-on-30 year old who thinks they already know it all. But cultivating positive habits and good personal finance for teens is a quality they’ll use and appreciate their entire lives—and a skill you’ll be grateful for, too, once your young adult establishes their own financial independence.
Just like your child takes math, history, science, and language arts classes at school, there are essential concepts your teen needs to master about money.
Talking about money doesn’t need to be like pulling teeth. Here’s some advice for easy and painless money management training for young adults that your family should start working on today!
Set an example
A study by the University of Cambridge found that money habits in children are formed by the time they’re 7 years old. If you and your spouse are arguing about money, they’ll notice that. So, set a healthy example for them and they’ll be much more likely to follow it when they get older.
Give them the responsibility of a bank account
By the time your kid’s a teenager, you should be able to set them up with a simple bank account. This takes money management to the next level, and will (hopefully) prepare them for managing a much heftier account when they get older.
How Bank Accounts Work
Teens may think of bank accounts as little more than remote piggy banks that occasionally chip in a little interest money. Teach them that a teenage savings account is the key to being able to afford bigger ticket items later and cope with financial emergencies like replacing a pair of basketball shoes left behind after an away game. A bank account can also be a route to a secured credit card once a large enough balance can be maintained.
If you regret going into debt or not saving more for their higher education, tell your kids. Parents so rarely have open, honest moments with their children. Kids can handle it.
Instead of hiding your financial failures or covering it up when money is tight, tell your kids the truth. If you ran up debts in your past and had difficulty paying them back, share that. They’ll appreciate your openness and learn a valuable lesson about overspending.
Learn about money together
Eventually you’ll touch on topics you may not completely “get” yourself—like mutual funds, money market accounts. If you don’t feel fully knowledgeable on these topics, that’s okay! Admit you don’t have all the answers and do the research together to find ways of securing your future. It’s a great excuse to spend some time together!
So go ahead and open up about the family finances, but keep it simple. Start the conversation, be honest, and teach and lead by example. Someday, your money-smart kids will be proud to follow in your big financial footsteps.
Needs vs. Wants
Your teen may think they need the latest smartphone, video game, or even a car. And be prepared for a well thought out rationale if you question why they think it’s a need.
While your teen may have some good reasons to call something a need, make sure you are firm and give examples when discussing the difference between needs and wants.
- A smartphone might be a need, but the latest smartphone is a want.
- Without a new video game, they might miss playing with their friends online, but it’s still a want, not a need.
- It might help everyone if your teen can drive to school or work, but in many cases, an extra car is wanted more than it’s needed.
We don’t want to send a message to our children that their wants don’t matter, though. If they budget for their needs and have an emergency fund in case something unexpected happens, they can set up savings accounts (also known as “sinking funds”) for their wants.
Set family goals
Let your children sit in on and contribute to family budget committee meetings. Just remember you and your spouse are the adults. Only mom and dad make the final decisions. If you are paying off debt or saving for the future, let the kids join in as you celebrate reaching milestones along the way.
As you set goals as a family, remind your kids that goals require sacrifice. That might mean skipping a vacation in order to cash-flow a car. But they’ll catch on—especially if they understand these sacrifices will affect their future as well.
Help them figure out how to make money
When you think about it, teenagers have plenty of free time—fall break, summer break, winter break, spring break. If your teen wants some money (and what teen doesn’t?), then help them find a job. Better yet, help them become an entrepreneur! These days, it’s easier than ever for your teen to start up their own business and turn a profit.
Teach them to steer clear of student loans
Before your teen ever applies to college, you need to sit down and have the talk—the “how are we going to pay for college” talk. Let your teen know that student loans aren’t an option to fund their education. Talk through all the alternatives out there, like working part-time while in school, and applying for scholarships now.
What About Financial Literacy in Schools?
Everyone complains that school should be teaching financial literacy. However, many schools do teach financial concepts through math.
Teaching your children about money at any stage is going to take time on your part. It won’t always be easy. But if you want your children to know how to successfully manage their money when they get older, taking the time now will be worth it.