How to Teach Your Teen Financial Literacy
If you’re the parent of a teenager, you’ve undoubtedly got a lot on your plate. Your child is slowly growing into an adult, gaining power over their life and their decision-making process in a way they didn’t have when they were young.
There are a million concerns that come along with this transition for most parents. However, one of the most important things you should be considering before your kids leave the nest is your teenager’s relationship with money. Whatever your child is planning on doing when they finish high school, they’re going to start making self-guided financial choices very soon. These early stages of financial independence are a minefield for developing poor financial habits, like overspending, poor credit management and minimal saving.
As most Canadian school curriculums still don’t comprehensively cover financial literacy, the responsibility to teach children about money management falls largely on their parents’ shoulders. This may seem daunting, but teaching teens about financial literacy need not be a challenge. Here are a few tips you can use to help:
Set them up with a bank account
Having a bank account is an essential part of managing one’s finances independently. If your teenager doesn’t have their own bank account, now is the time to help them open one!
Managing a bank account involves developing a repertoire of important financial skills, like using a debit card, reading bank statements and banking online. If they have their first bank account while they’re still living under your roof, you’ll have the opportunity to walk them through anything they don’t understand on their own. Plus, if you feel it’s appropriate, you can also link their bank account to your own so you can keep an eye on it until you feel they’re ready to control it alone.
Speak with them honestly
Many parents feel uncomfortable talking about money with their kids. Some feel that they themselves haven’t done a great job with financial management, making it hard to set a good example for their children. However, though every household’s situation is different, every parent has a lifetime of money management experience to pull from. Stories of both positive and negative experiences can be an excellent addition to your lessons about personal finance.
For example, if you made mistakes with your first credit card and spent a long time paying off your debt, use this as a speaking point with your teen. Share your story as an example of what not to do, as your personal take might drive home how much easier things are when you don’t overspend.
Money management can be very challenging at times, and one’s personal financial choices can sometimes make the difference between stability and ending up in a tough spot. It can be a difficult subject to talk about, but speaking to your teen honestly about the challenges they’ll face as an adult is one of the best ways to help them understand the importance of making smart financial choices.
Encourage them to save their presents
Most teenagers are fortunate in that they aren’t paying for their costs of living, like rent, food and utilities. This means that any money they receive or earn can be spent on the non-essential purchases of their choosing. However, this is a luxury of youth: very few adults get to buy whatever they want, whenever they want it. This financial freedom during teenage years means that many young adults have misconceptions about needs and wants, and many are not tuned into the importance of saving money.
So, when your kids receive cash presents from family and friends, it creates a great opportunity for them to start saving. You may be met with a bit of backlash if your teen has plans to spend, but even if they only save half of what they receive, they’ll be growing a pool of savings that may help them out greatly one day in the future.
💡 If you’re looking for a way to help your teens save their gifts, why not set them up with a QUBER account? You can either set up a Saving Jar for them within your own account, or you can start them an account of their own. This is a great way to encourage them to keep their savings untouched while also influencing them to see the fun side of saving. If you’re looking to get started and download the app, click here.
Go over credit thoroughly
One of the most common mistakes young adults make when they start making their own financial decisions is that they abuse their credit privileges. For those who haven’t yet been in debt or managed all their expenses on their own, it can be hard to grasp that overspending on a credit card is a dangerous road.
That’s why it’s so important that you do your best to educate your teen on the realities of owning a credit card and how to use it effectively. There are a ton of different credit-related lessons to be taught: that credit isn’t an extra source of income, how your credit score affects you, why it’s important to pay your bill on time and in full and so on. The reality is your child will learn these lessons with credit – it’s just a matter of it they learn it in theory or if they learn from their mistakes.
A great way to do a “test run” is to open a beginner credit card and walk them through the process of use and repayment. Many companies won’t allow a person under the age of 18 to open a credit card on their own but will allow for it with a co-signer. Try starting them with a very low spending limit, like a few hundred dollars, and have them pay for a few things with it. That way, they can pay their bill in full without getting overwhelmed and get used to the process of paying on time.
Make it relevant to their interests
Money management can be a complex (and sometimes dry) topic to discuss, even for adults. If you’re worried you won’t be able to hold your teenager’s attention on financial matters for long, figure out a way to make money management relevant to their wants and interests.
For example, if your child really wants to purchase their first car, there are a ton of financial lessons involved in getting there. They’ll need to make a considerable down payment, which would involve some diligent saving on their part leading up to their purchase. They’ll also need to know about how interest rates will determine how much they really owe on their car, and how the terms of the loan they take on will affect their repayment schedule. You’ll also have a great opportunity to teach them about how an unexpected car repair could become a major problem for them, highlighting the importance of having an emergency fund.
Whatever your child is interested in, there’s almost certainly some financial lessons to be learned for them along the way. Relating financial literacy to what interests them, like activities with friends, fashion or sports, will make your job much easier!
