How to Teach your Teenager Good Money Habits

Talking to teenagers can be a challenge. However, teaching your teen good money skills is such a valuable life skill. By teaching your teen good money skills before they leave home, they will avoid debt, build savings and invest in their long term future. Think of your teen as an adult in training. Teach them what they need to know for that moment you send them off into the big wide world. But you don’t have to be a finance guru to teach your teen how to have good money skills. You can show them by example.

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Remember: Your child watches you and listens to you: Learning is more caught than taught. 

Before your child leaves home, you’ll want to show them how they can manage money well.

Here are some top tips for teaching your teen good money skills. 

Value Money

Teenagers need to know that money doesn’t grow on trees. They also need to appreciate that as parents, we’re not going to purchase those high ticket items. To funds their dreams and desires, they will have to get creative in order to raise the money.

By encouraging teenagers to be creative and think outside the box, you are enabling them to value money. 

Pocket Money

Pocket money is a great way for teenagers to earn some cash: 

Helping neighbours with chores

  • Pet-sitting
  • A paper round
  • Clearing cars
  • Selling unwanted toys, books or outgrown clothes
  • Hosting a bake sale 

Budgeting

One way that you can teach budgeting is to include your teenager in your budget meetings with your partner.

Talk to them about your income and what you need to budget for. This includes bills, shopping, and anything you spend on them, such as school lunches or trips or extra curricular activities. 

Over the long school break, you could give your teenager an envelope with cash for the summer. Remind them that they need to pay for activities, new school uniforms, shoes and other treats that they desire. At the end of the summer, have a discussion.You could ask them:

  • Were you able to stick to the budget?
  • What did you enjoy?
  • What did you find difficult?
  • What would you do differently next time?

If you would like to read more on budgeting, check out my blog Why Budgeting Is Essential. 

If you’d like to try a more formal approach to budgeting, I have created a super, simple Excel Spreadsheet. I have found that it helps people start their budgeting journey. It is specifically simple as I appreciate that budgeting can be overwhelming. This spreadsheet is easy to understand, use and apply! 

Savings Challenge

If your teenager would like something that’s over your budget, then you could set them a savings challenge. 

Our daughter would like to go to a concert in London next August. Tickets are currently in the region of £400 each. That’s definitely more than we are willing to pay. So, because she really would like to go, she is now finding ways to make money and save. 

Tomorrow, she is hosting a bake sale. She is walking a neighbour’s dog over the weekend and she has also started a shop on Etsy! 

She knows that if she really wants these tickets, she has to find a way to raise the money herself! We are teaching our teen good money skills! 

crop man counting dollar banknotes
Photo by Karolina Grabowska on Pexels.com

Saving, Spending and Giving Away

I highly recommend giving your teen three jars, clearly labelled: Saving, Spending and Giving Away. When they earn money, they can choose which jar they would like to place the money into. 

Consequences

A key aspect of guiding teenagers in financial responsibility is establishing your limits. You must not fund their every whim and desire. You must restrain yourself and bail them out every time they are in financial trouble. If you do this, you are not teaching them to face the consequences of their actions. 

Although it’s hard, It’s wiser to let them face the consequences now, when the sums involved are relatively small. When they are older, the overspending could escalate and result in significant financial trouble down the road.

Practise what you preach

Your saving habits can profoundly influence the financial behaviour of teenagers who are watching and learning from your actions. If you’re someone who diligently saves up to make a purchase, it’s likely that your teen will adopt a similar approach.

Conversely, if you frequently resort to credit for non-essential expenses, they’re likely to mirror this behaviour.

If there’s something you genuinely desire but currently lack the financial means to afford, it’s important to have an open conversation with them. Discuss the following:

  • The amount you need to save.
  • The strategies you plan to employ to reach your savings objectives.
  • Whether you’ll need to cut back on other expenses or explore opportunities to increase your income.

Encourage them to share any ideas they might have to assist in achieving these financial goals.

Be honest

You don’t have to be an expert at money management to help a teenager be one.

Some people worry that their own poor money skills will be a bad influence. Don’t worry – just be honest with them.

Talk openly about some of the financial mistakes you’ve made – both as a teenager and as an adult. Discuss what you would do differently if you could turn back time. Hindsight is a wonderful thing and talking about your mistakes can be a good way to teach them what not to do! By being honest, and sharing your mistakes, you are teaching your teen good money skills. 

Open a bank account

When your teen has income, they need a place to put it. Opening a bank account is not only important for saving purposes, but it can also give your teen a sense of joy when they see the balance (hopefully) increasing!

Having a bank account is the first step in learning basic financial skills like making deposits, monitoring transactions, and using a debit card. 

However, do be intentional when opening an account with your teen. Know that your bank may try to persuade you to have an overdraft and / or a credit card. You don’t need either of these… more of which later! 

Set goals

Hopefully, your teen will have heard you talking about your goals and developed a good attitude towards goal setting. 

We have had many goals over the years: 

  • becoming debt free
  • building an emergency fund 
  • and more excitingly, saving for a three week holiday to Florida! 

All of these goals required us to be mindful when spending our money. Working towards the goals as a team was vital for family morale. 

Once we had set the goals, it was important for us to track our expenses. Sometimes, we spent more than we should. Sometimes we made silly mistakes and other times we just bought things on impulse. These things happen. It’s good resilience to figure out what went wrong and how we could avoid making that mistake again. 

One thing we learnt was to ask each other three questions before a purchase:

  • Do we need it?
  • Can we afford it?
  • Can we buy it cheaper anywhere else?

Avoid Debt

In a society where  you can buy anything you want and pay later (even pizza!), debt is the norm. However, learning to save up the money and then purchase something is the way to go. Teach your child to save and then buy. Delayed gratification is the key! 

As I said earlier, be mindful that banks will tempt you with overdrafts and credit cards. You don’t need either. 

Investing for the Future: Compound Interest 

In essence, compound interest is a financial phenomenon. Your earnings not only accumulate on the initial sum you’ve saved but also on the interest you’ve already earned. Consider this scenario: when you invest or save money in an account, it generates interest as time goes by. However, if you refrain from withdrawing the interest that accrues in the account, it gets a chance to generate more interest by itself. This self-propagating cycle leads to an accelerated and more substantial growth of your wealth. This, in a nutshell, is the remarkable magic of compound interest.

So, if you are saving for a long term goal, the earlier you save the more interest you will acquire. 

This is why starting a pension early is great, there are many financial institutions that will set up a pension for your child – from birth! 

A child’s pension account can only be initiated by a parent or guardian, but once established, it becomes accessible for contributions from a wide circle of individuals, including parents, grandparents, godparents, friends, and extended family members.

One notable advantage of pension accounts is that they restrict access to the beneficiary until retirement age, unlike a Junior Isa, which grants access at 18. This means that even if you only make contributions for a limited number of years, the pension fund has the potential to appreciate in value over several decades.

So, in summary, helping your teenager to recognise the value of money is such an important life skill. By teaching them how to handle money, you are investing in their future. With your help, they will know to avoid debt, build savings and invest for their future. What’s not to like?

Article written by Karen Hackman, Finance Coach.

If you found this blog helpful, then please check out my website for more tips on how to win with money. www.moneyandmarriage.net 

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