Managing money doesn’t come intuitively. It’s learned by watching others do it and from first-hand experience. How parents talk about money and the choices they make with it send powerful messages to teenagers.
However, watching parents make good decisions isn’t enough. Teens want responsibility, and they want to be involved. Introducing purposeful discussions and expectations about money will launch your teen into adulthood with the experience and knowledge they need to protect their finances and avoid costly mistakes.
10 ways to teach teens to be financially responsible adults
Whether your teen is managing money from a job or budgeting an allowance, developing good habits will help them make good decisions once they’re on their own. Here are ten hands-on ways you can help get them started:
1. Earning money
Before your teen can manage money, they need to earn money. It can begin at home or with a first job. Consider paying your teen for doing extra housework. Encourage them to do yard work or pet care for neighbors. If they’re old enough, guide them into a part-time job. There’s a wide range of jobs available for teenagers, from internships to camp counselors, babysitters, and restaurant workers.
Once they’re earning, have your teen divide their money into dedicated amounts for saving, giving, and spending. The Consumer Financial Protection Bureau (CFPB) recommends saving at least 10% of each paycheck and teaching teens about payroll deductions. Another option is 70-20-10 budgeting. Under this strategy, 70% goes to needs and wants, 20% to savings, and 10% to donations.
2. Charitable giving
Having money available to share, and being intentional and consistent with it, is rewarding for your teen and good for your community. Setting aside funds for giving, especially when your budget is tight, requires commitment and discipline. Donations don’t need to be large sums or given to large organizations.
A few dollars dropped into a collection box, supporting youth sports teams, refugees, the environment, or an animal shelter are great starts. Motivate your teen by encouraging them to give to organizations or causes they are passionate about.
3. Bank accounts
Having a bank account gives teens the ability to manage their money independently while still receiving guidance from their parents. This offers benefits to both parents and kids, explains Matt Gromada, head of youth, family, and starter banking at Chase.
“First, it opens the door for important conversations and real-world scenarios about the basics of finance – from spending and saving to explaining interest and how it accrues,” Gromada says. “Second, it gives the child a sense of independence and freedom, providing the opportunity for real-life experiences and learning.”
If your child is earning a paycheck, direct deposit is a convenient option. The financial institution should be federally insured and offer online and mobile access, giving your teen the ability to check balances from their phone.
4. Debit or prepaid cards
With money in the bank, your teen will need a way to access it. Debit cards draw down their account balances as they spend, and may be accepted in place of a credit card at the point of sale. They can be convenient but may come with fees and hefty penalties if the account is overdrawn.
Prepaid cards offer more safeguards but less real-life learning. The parent determines the amount available and preloads it onto the card. Purchases that exceed the available balance are not approved, but linked parent and teen apps allow parents to transfer money instantly when needed. They can be a reasonable solution for those who aren’t yet ready for a traditional debit card.
When choosing between a debit or a prepaid card, consider your child’s money skills and maturity, along with your needs and wants as their parent.
Learning to save money will help your teen prepare for everything from special purchases, to college, retirement, and emergencies. Develop a budget with them and show them the value of being frugal. Prioritize needs over wants.
The CFPB encourages teens to “save 10% of what you earn, and have at least three months’ worth of living expenses saved up in case of an emergency.”
Make a budget and discuss with your teen how much they can save. Ask them to think about what they’ll have to give up to meet their savings goals and why it’s worth it.