One of my earliest money memories revolved around tax time. Most people despise tax time, but for our family, it meant something special. Every year, when my parents received the tax refund check in the mail, they took us out to eat at a nice restaurant. We didn’t get to eat out often, so it was a highlight for our family. The good food was great, but the financial lessons I learned were better…and lasting. This simple family tradition taught me the importance of savings goals, delayed gratification, and living within my means, among others. These lessons prepared me for the day I had to make financial decisions on my own.
It is important to begin teaching children about money while they are young, even as early as three years old. It is even more important to share these lessons as they get older, especially when they become teenagers. Many teens have some basic understanding about money and finances. Some may even think they are experts on the topic. Perhaps they understand you must work to earn money, it takes money to pay bills, and saving money is important. If they understand these things, they are headed in the right direction.
However, teens have much more to learn about money. As they get older, the stakes become higher. Into college and beyond, they will encounter some of the most important financial decisions they will ever make. As they grow into young adults, you can and need to help them learn how to manage their own finances well.
Not sure where to start? Consider four basic financial principles every teen needs to know:
- Money comes from hard work. One of the first lessons teens need to learn is money comes from working. An allowance for younger kids is fine. As they get older, perhaps give them more advanced chores for their allowance to teach them the relationship between hard work and getting paid. Encourage older teens to get a summer job and earn a paycheck. Whatever course you choose, it is crucial for them to learn not to expect handouts.Seize the opportunity to teach teens about their first paycheck. You can be sure they will be counting down the days to the first check. If they are unprepared for what the check will look like, they may be sorely disappointed. Teach your teen the difference between gross pay and net pay. Let them know in advance money is deducted for taxes. Teach them about the various taxes withheld (Federal Income tax, Social Security tax, Medicare tax, and state taxes) and the why behind taxes. This will help them prepare a budget based on the actual amount they will receive, not gross income.
- Giving is a blessing and responsibility. Parents should model giving, teach our children the importance of giving a portion of everything they earn, and express the joy found in giving. Teach teens to tithe from their very first job and paycheck. Explain why you give, how important it is, and the direct connection between giving and faith. Teaching your child to have a generous heart is one of the greatest lessons—and gifts—you can share with them.
- Saving has great benefits. It may be tempting for some teens to spend every dollar. However, it is crucial for them to learn about delayed gratification, that you can’t get everything you want right away. Help them develop savings goals. Open a savings account for them and let them save towards those goals. These early goals will help them when bigger goals come into view: paying for college, purchasing a vehicle, or buying a house.Short-term savings teaches them about long-term savings in the future, like retirement. It is never too early to start preparing for retirement, and a Roth IRA is a great place for a teen to start preparing for the distant future.
- Spend and track money wisely. Teaching your teen to track spending can be an eye-opening experience…for both of you. Once teens see where their hard-earned money is going, you can help them create a simple budget. These early budgets do not need to be complicated. Simply teach them to list their income and their expenses (giving, saving, bills, and more). This will help them from overspending on wants and prepare them for making tougher financial decisions as adults.
Teaching teens about money is a process. These four financial lessons are good first steps. After they have a good handle on these principles, venture into other important areas: the power of compound interest, managing debt and its potential consequences, a good credit score and why it matters, how big loans affect your life, credit card usage, etc.
Teaching teens about money doesn’t follow a prescribed formula. But teaching your child to handle money responsibly is an imperative. So, find the ways that work for you and your kids. Start young to help them build good money habits and ground them for the real world. The more you interact on this important subject, the easier it will be to talk seriously to them about their financial futures. Your goal is to help create a roadmap leading them to a lifetime of handling money responsibly.
This article was previously posted in the April/May 2023 edition of ONE Magazine.