Many children can understand simple financial concepts as early as age five, which can be a good time to teach them about the value of dollars and cents, as well as the difference between needs versus wants. However, once they become teenagers and are old enough for a job with regular income, showing young people how to make a budget is a key step in preparing them for the real world.
It would be nice if a subject existed in school to teach kids between the ages of 13 and 21 about major financial topics, such as creating and managing a budget, learning how loans work or achieving savings goals. If this is the age where you are just starting to teach kids about finances at home, that's OK — it's never too late. If they are a young teen, a good place to begin would be building confidence. Help them create a financial plan or teach them the importance of keeping a part-time job.
As a money mentor to your teenager, you should share examples from your own financial life. Sharing that you once overspent on your budget but then paid off your credit card will let them know no one's perfect and they can do better next time. To help your teens gain awareness of what's ahead, we've listed a few ways you can promote financial education to them.
Budgeting
Find out what your teenager spends their money on and work out a plan with them. Let them give mature input, and make sure they know this budget is theirs and that they set their own priorities. It can start with a simple spreadsheet or by using one of the many budgeting apps available.
From there, put together all the sources of income and fixed expenses. These numbers are static and rarely change from month to month. Next, and a little more challenging to pin down, is to figure out variable spending: expenses such as entertainment, groceries or eating out. You can then include any saving habits that your teen may practice. Do that math and see where spending can be reduced or if there is a little more room to indulge. Help them commit to the budget on a monthly basis and make any adjustments that are needed.
Long-term savings goals
At this age, their own car is probably the first thing on a teen’s mind. If they want a car, they can pay for it. Teach them what they should save each month, and for how long, before they have enough to pay for a target down payment. Early exposure to goal setting helps to give them patience and a vision: two things they’ll need in life. A good starting point would be to open a checking or savings account with $0 monthly fees, such as the U1 Checking and/or Savings account. Your teen would have their own debit card and could apply the education to real-world transactions.
Credit scores
It's important that teens understand the consequences they may face if they don’t keep their finances in good shape. Make sure you discuss the impact missed payments and large amounts of debt can have on a credit score.
Credit cards
A teenager with a credit card can seem scary, but teaching the ins and outs of interest rates, payment periods and amounts, will prepare them for adulthood. Let them know the risk of credit card debt, and how credit card debt and interest expense can quickly accumulate.
Debt
Teach your kid the difference between “good” and “bad” debt. Money borrowed for a mortgage would be considered good debt, as it helps you grow wealth and establish credit over the long run. Let your child know the risks of debt as well, such as missing payments or continuously making purchases on credit.
A lesson every teenager should know is the real cost of life. In today’s cashless society, it can be difficult for children to understand the actual cost of their spending. Take the time to walk your teenager through each financial transaction they make. Let your child see how you pay bills on a monthly basis. Showing them your account balance to the bill amount and how it’s withdrawn from your account will help them see the complete picture.
Set kids up for success through confidence-building and encouragement. Financial, or even personal success relies on discipline and patience. In today's culture, teaching kids to be money-savvy can be difficult, but we can get them there with some empowerment.
Don’t worry too much about things you don’t know. If you don’t feel confident about money matters, you're not alone — many people don’t, and that’s OK. Every day, you excel at something your children need to learn, whether it’s managing your time between work and home, saving money when you shop, or planning for something in the future. At the end of the day, it’s up to parents to teach financial education and help prepare kids for the future so they have the best chance of success.
Visit u1cu.org for additional information or help on how to teach your child financial education and literacy.
Universal 1 Credit Union (U1) is a not-for-profit financial institution that exists to create personal, community and financial well-being. With over 50,000 members and more than 85 years of service, U1 has been serving members in the Dayton, Ohio, area since 1937.