It is imperative to teach your teens about the facts of finances. Here's what you'll want to keep in mind.
Teenagers may not always think long term about money, but more high school students are learning how to build a strong financial future.
Kentucky recently became the latest state to require financial literacy as a stand-alone class needed for high schoolers to graduate, bringing the total to 36 states with some form of financial literacy requirement for graduation, according to the Council of Economic Education — up from 21 in 2020.1
Research suggests financial education can pay off. Students who take these courses may earn more college grants and scholarships, rely less on credit cards and be less likely to use services such as payday loans.1
These benefits reinforce the importance of helping kids build smart money habits early.
Save and pay for school
Everyone knows that school is expensive — whether it’s college or trade school your young one chooses. However, having a post-secondary education opens many opportunities. So having one can help young ones grow into financially stable adults.
A scholarship helps pay for tuition, books and room and board. To qualify for one, having an excellent academic or athletic track record helps, but so does having a knack for community service or writing an excellent essay. So, encourage your teen now to get involved and hone their skills in areas in which they excel.
Most likely, a scholarship may make just a small dent in your child’s school expenses. So, start saving for it as soon as possible. Consider a 529 educational savings plan. Note that you can use 529 savings for federally accredited trade schools and associated charges for the program along with required tools and housing — as long as they are considered part of the program.2
Your child can contribute to their 529 plan (or regular savings account) with money they earn from a job such as a food server, lifeguard or pet sitter. The point is that your child should contribute financially to their education — no matter how big or small the amount — so that they feel a sense of accomplishment and ownership in their education.
Taking advanced placement (AP) courses in high school can pay off in the long run — literally. Doing so gives students a head start in earning their degree since many U.S. colleges and universities offer credits for certain AP courses, oftentimes allowing them to skip introductory or core courses. With fewer credits and books to pay for they’ll save money on tuition — and might even graduate early in the process.3
Create a budget
Creating a budget is one of the most important lessons to teach your teenager if you want them to grow up to be financially responsible adults. It includes teaching them how to track their spending while saving for the future.
To do so is simple enough: They should create a list that includes their monthly income (after taxes) along with tips, bonuses and allowances. Doing odd jobs for neighbors such as mowing, babysitting, tutoring and shoveling snow can help increase income. Because their income might vary month to month, it’s good to figure out a monthly average.
The next step is to make a list of monthly expenses such as food and drink, entertainment, transportation (including car insurance and gas), mobile phone, clothes and grooming, school supplies and other living expenses they use on a regular basis and the amount of money they spend on each.
Then, it’s a simple addition and subtraction exercise. Some experts recommend a 50/20/30 split of your net income: 50 percent for fixed expenses, 20 percent for savings and 30 percent for leisure activities. If you have a generous teen, they might want to put a portion of that 30 percent (i.e., 10 percent) toward their favorite charity.4
To learn more about budgeting, encourage your teen to talk to financially responsible adults and read up on the subject as there are plenty of financial resources out there that are geared toward teens.
Build credit
If your teenager is trustworthy, consider co-signing a used car loan for your 16 or 17-year-old and their first apartment lease when they move out. Paying rent on time boosts credit scores, especially if their landlord reports their rent payments to Experian RentBureau.
A debit card can be a good training tool for having a credit card, if the user builds good habits when using it. If you don’t think your child is ready to totally remove the training wheels — at age 18, consider steering them toward a secured credit card, which requires a down payment (or deposit) that becomes your credit limit.5
Student credit cards are another good option while providing nice perks. Certain ones are better for earning perks toward groceries and dining, travel, gas or cash back. Just make sure you’ve drilled the importance of paying off the bill each month so they don’t accumulate debt.6
Pay bills on time
Most teenagers have turned in a homework assignment late, resulting in a reduced grade. Paying bills late results in a reduced credit score. Paying them before they’re due results in peace of mind and a good credit score. There are practical ways to teach your child to pay their future bills on time.
Tell them their bill-paying options: they can set up automatic bill pay, pay in person, pay with a check and mail it or pay by phone or online. No doubt you have a system in place to pay your bills. Share it with your teenager and tell them why it works for you. If your teen has a recurring bill, such as car insurance, teach them how they can manage their payments.
Save for retirement
For years you’ve preached the importance of saving for college to your kids. To them that might have seemed like a lifetime away. Now that it’s here, it’s time to talk to them about the importance of saving for their retirement.
That’s why it’s important that you teach your children the value of compound interest so that when the time comes, they put enough in their 401(k) to get the employer match (if applicable) and then steadily increase the amount they set aside each year.7
In the meantime, lay the foundation for them to have a good financial future by teaching them sound financial principles and leading by example.
