Financial Advice for Your Teen
When your kids reach their teens, money becomes much more important. Here’s how parents can teach financial literacy for teens.
July 14, 2022
This article is provided for informational purposes only and should not be construed as legal or investment advice. Always consult with a professional financial or investment advisor before making investment decisions.
As kids become teenagers, money transforms from a concept to a daily reality. Teens often start working, managing their own money and maybe even saving for long-term goals.
So, how can parents teach financial literacy for teens? The term “financial literacy” refers to basic money knowledge that will help teenagers navigate the financial world. Here’s what parents need to know.
Setting up a bank account
The basic toolbox for financial success starts with the simplest tool: a bank account.
If your teen does not yet have an account, now is a good time to set one up. You may need to open a joint account with your teen, but this won’t affect your finances.
Local banks and credit unions are a good option here. Some banks offer “teen checking” accounts, which generally offer no monthly fees and other cash-saving perks. These accounts usually convert into a standard checking account once the teen reaches 18 years old.
To set up a bank account, your teen will need their photo ID (2 forms, in some cases), their social security number, and an opening deposit. They can open an account online or in person.
Picking up a summer job or side-hustle is a great way for teens to learn real-world skills. Teens can check with local businesses and local job boards to browse opportunities. Parents can assist teens in finding suitable jobs, crafting their resume and filling out applications.
As parents, your teen’s first job presents a great opportunity to teach valuable life skills: the value of hard work, the basics of income taxes and the tradeoffs of saving vs. spending.
At the same time, it’s important to let teens make their own financial decisions — and mistakes. Provide advice and guidance, but don’t micromanage your teen’s finances, particularly if they’ve earned that money themselves. Making and managing their own money is an important step in growing your teen's financial literacy.
Starting a budget
Budgeting is an important skill to learn. The earlier teens grasp the concept, the better.
Sit down with your teen and help them break down their budget in simple terms. Start with their income — on a paycheck or monthly basis — then start working on expenses.
It’s helpful to define the basics for teens, like how to categorize expenses:
Fixed expenses vs. variable expenses: Fixed expenses are the same amount every month (like a phone bill), while variable expenses change frequently (like activities).
Needs vs. wants: Expenses that are absolutely necessary could be called “needs,” while optional expenses are just that — optional.
Read more about how to build a budget to teach your teen the right approach.
Creating a savings goal
The concept of saving money for the future will serve teens well. While your kids might be eager to spend every dollar they earn, it’s helpful to at least teach the concept of saving.
It’s a good strategy to help your teen identify something exciting that they can save for. This could be a trip with friends, a new gaming console or some fancy new clothing.
While we’d all like our teens to save for college or retirement, it’s much more realistic to teach savings concepts via a more exciting end goal.
Another strategy that parents could utilize is “sweetening the deal” for teens.
For example, say they want to buy a mountain bike that costs $1,500. You could present them with an offer: If they save up $1,000, you will kick in the remaining $500 to help them out. This can make saving more attractive and mimic the concept of earning interest on savings.
Along with the basics of saving money, equip your teen with some very basic knowledge on how to invest. This could remain conceptual or be made more practical by opening an investment account for your teen (this will need to be a custodial account that is linked to your name).
One way to get teens excited about investing is to help them buy stock in one of their favorite companies. Maybe they love McDonald's, or Nike — you could help them purchase a single share in that company so that they can proudly tell their friends “I own stock in Mcdonald's.”
For more on what to teach, read through our investing 101 guide.
Debt can be a slippery slope. Whether it’s credit card debt or student loan debt, teaching kids the actual concept of how debt works is very important.
To teach financial literacy to teens, explain the concept using a simple example. For instance, if they put a $100 purchase on a credit card at 20% interest, that means it will cost them $120 if they pay it off a year later. This is a simplified example, but it gets the point across.
Now is also a good time to teach the basics of credit scores and the importance of having good credit. Their credit score can affect their ability to borrow money and even their ability to get an apartment.
Teens likely won’t have an active credit profile until they get their first credit card or loan. To help build credit, applying for a secured credit card may be wise. Secured credit cards require an upfront deposit, but they can raise the teen’s credit score by building a positive credit history.
Avoiding fraud and scams
Keeping an eye out for scams and fraud is also important. Parents should do their best to teach some of the warning signs of potential scams, such as:
An offer that is too good to be true
Unsolicited investment advice or “opportunities”
Unsolicited calls asking for personal information
For more information, see our guide to identity theft protection and this list of common scams from the FBI.
Teens can benefit from some early financial knowledge — but they may or may not be receptive to your advice. If they’re not, try to find someone in their life that they may listen to more, like a trusted relative or an older friend.
Parents should do their best to provide financial literacy for teens, but avoid controlling or condescending behavior. As you likely know, teens don’t react well to that.
If your teen expresses a genuine interest in money, you might suggest books for financial literacy for further learning.
Finally, parents should lead by example. If you practice good financial habits yourself, your kids will observe those habits and will be more likely to be financially responsible themselves.
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