As much as some people try to downplay its importance, money can make quite a difference in a person’s life. It can influence many parts of you, from your lifestyle to your mental well-being. Some parents skimp on teaching financial literacy and management. However, the truth is your kids need help with shaping these skills in the long run. 

Financial Literacy for Teens

Financial literacy for teens is the gateway to grasping the components and skills behind money management. When your kids transition into adulthood, they traditionally have to earn and manage their money on their own. 

Times have changed, as it’s now socially acceptable for parents to give financial assistance and be more involved in their kids’ lives. Only 45% of young adults are completely financially independent from their households. However, you still need to teach your children not to be so reliant on others regarding cash. 

Teaching Budgeting to Your Kid

Budgeting is a core aspect of financial literacy for teens. This essential skill allows your kids to see their money as a limited resource to divide among different expenses. Each parent will have their own approach to teaching this concept, whether in explanation or exercises. Use this outline to guide your young adolescent in the right direction. 

1. Divide Needs from Wants

What classifies as a need and a want for your teen? Most people have a skewed perspective where everything they wish for is considered a necessity they need to fulfill. It’s important to establish a difference between a regular desire to an actual essential. 

For example, say your teenager needs art supplies for a project. Maybe they’re also craving chips and sweets that night. Establish that school requirements should hold a higher priority than some impulses they have.

You don’t have to frame wants with an entirely negative connotation. Some level of self-indulgence is okay to treat yourself once in a while. Teach your kid some patience so they don’t spend their money hastily on sudden inclinations. The main message you need to send is contentment over consumerism. 

2. Outline the Necessities

Needs change over time, depending on what stage of life you’re in. Give your teen a brief overview of adulthood and the general necessities they need to prepare for. Talk about what they need to put first in their budget. Here are some of the basics:

• Rent or Mortgage: If your teenager ever desires to move out into an apartment or get a home, they need to know it isn’t cheap. Paying rent or mortgage will take a significant percentage of their cash. It’s a monthly commitment. 
• Food: Another large expense your kid may not consider is food. Rather than just getting homecooked meals and requesting takeout, they have to recognize the prices of each meal and stretch it out for the rest of the month. 
• Utility bills: Every drop of water out of the faucet, every device plugged into an outlet—all these can impact one’s utility bill. In today’s digital age, the internet is also a basic service to set aside money for. 
• Health insurance: Compare different health insurance from various providers, and explain the pros and cons of high deductible health plans versus low deductible health plans. 
• Car maintenance: If your kid plans to get a car, they need to know the expenses don’t stop from its initial purchase. They must schedule and pay for car maintenance services to ensure it’s in top condition.

3. Let Them Handle One Expense

One good exercise to teach your teens budgeting is to give them one house expense they’re responsible for. For example, if they want to take the car for a trip with friends, let them know they are responsible for their gas money. 

Making your teenager handle a purchase can hone their financial literacy skills. How much gas can they afford? What distance can they go based on how much cash they have? Should the friend group split expenses to divide the budget?

4. Bring Them to Grocery Shopping

Another way to teach your teen to manage their money is to bring them to grocery shopping. Provide them with a set amount of cash and a list of items they must get. Allowing them to take the reins can be a reality check for the prices in today’s market. 

This activity can also open their eyes to the importance of finding a good deal. Teach them to compare the prices of two similar products. You can also highlight the importance of quantity and quality of consumable and non-consumable resources. 

5. Differentiate Debit and Credit

While payment methods are a separate topic from budgeting, it’s important to provide an overview to your teenager. Debit and credit are two general types of cards to purchase products and services. Debit source funds from a bank account you own.

Meanwhile, credit takes money from the bank under the agreement that you will have to pay it back afterward. Young adolescents must be careful when using credit cards, as payments can have interest stacked on top after a certain period. The average Californian has a $5,120 credit card debt, with some carrying more or less.

6. Talk About Financial Dynamics

There are other ways an individual can borrow money. Some people reach out to relatives and friends in hopes of getting or lending cash. These acts of service are kind, but they can impact one’s social reputation and relationships with other people.

If your teenager needs to borrow money, teach them to ask for only what they can return. Prioritize paying back immediately for integrity. When asked for money, they should ensure the rest of their budget is still intact and only lend what’s in excess. 

7. Open Up Discussions in Investing

Some people like to allocate funds to invest in their budget. After all, it’s a simple way to grow your money if you do it right. About 31% of teens haven’t begun investing because they think they’re still too young to start, while others believe they don’t have the money or resources.

Parents should seek to empower their kid’s curiosity towards this scheme. Remember to teach them that some investments have higher financial risks than others. For guaranteed returns,  suggest a high-yield savings account. They can build up their savings pool while attaining steady money growth. 

8. Suggest Getting a Job

A job can provide plenty of experience and a good source of income. Encouraging your teen to take on a part-time venture can give them some monetary responsibility. If they’re more business-oriented, suggest entrepreneurship.

Becoming an employee or entrepreneur can be good to think about early on in life before adulthood. About 66% of American teens will likely consider starting a business when they get older. Ask your teen if they have any ideas and consider the prospect of funding them. 

9. Help Them Track Their Cash Flow

If your teen is starting to earn money through their job or business, teach them to track their cash flow and understand when the money arrives. This skill will help determine whether an individual has enough cash to allocate to different expenses.

Cash flow also tackles whether you’re overspending in certain areas. For example, if the outflow is going towards wants more often, your teen needs to take this as a sign to scale back.

Revealing the True Value of Money

Parents are considered a guide to all aspects of life for their kids. Money can be quite an important and delicate subject to tackle. Starting the discussion on financial literacy for teens can help them transition into adulthood in the future.