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Out of the many life skills that impact our lives, one of the biggest ones (in my opinion) is financial literacy. Knowing how to earn, spend, and save money is a skill set that everyone could benefit from — but that many people lack.
Honestly, many of us have made financial mistakes that have caused us to struggle needlessly and in major ways. A lack of money management skills can cause us to have trouble paying the bills, make poor financial decisions, and generally not be able to do the things we want and need in life.
That’s why it’s so important that we, as parents and caregivers do everything we can to teach teens about money so that when they’re out in the real world, they have the tools to support not just their needs, but their dream lifestyles.
10 Ways to Teach Teens About Money
Don’t give them an allowance
This may be an unpopular opinion but bear with me. Rather than giving your children an allowance, require that they EARN it. Assign a monetary value to different tasks that they can do around the house and tell them that they can earn money each time they do a task.
If you can, try to calculate how long each task would take to complete and then pay your state’s minimum wage for them to do it (which will help with the next method).
Show them how much it takes to buy things
Talk to your kids about how money works in the real world. This means teaching them that things cost money, that money is earned by working, and that traditional jobs pay either an hourly rate or an annual salary.
You may even go so far as to talk about net and gross income (how much they earn versus how much they actually get paid).
Then, help them get into the mindset of figuring out how many hours they have to work in order to earn the different things they want or need. For example, if they want to buy a $60 video game and the minimum wage is $10 in your state, then they’d have to work no less than 6 hours to be able to buy it. Maybe closer to 7 or 8 hours, once you account for taxes being taken out your pay AND taxes added on to the sale price of the video game.
Once they have an idea of how much time and effort it takes to earn the things they want, it will help them value not only work but also value money. (It may also have the side benefit of helping them think more about their future, what kind of career they want to pursue, and even whether they want to start their own business so they have more control over their income).
Help them find opportunities to earn money
Speaking of gaining control over their income, it’s never really too early to teach your kids how to be industrious or entrepreneurial.
Even if they’re not old enough to get a traditional job yet, there are countless ways for kids to make money doing things they’re good at, that people are willing to pay for, and (most importantly) that they love.
They can do things for neighbors, other family members, people in the community, or even start a side business doing something they enjoy.
The whole point is to show them that there are a lot of different ways to earn money if you keep an open mind, use what you have at your disposal, and aren’t afraid to do some work.
The earlier they develop this kind of mindset, the better equipped they’ll be to take charge of their income and be able to generate multiple streams of cash flow (which is never a bad thing).
Make them save up for the things they want
This may seem like tough love, but I promise that it is a worthy lesson for them to learn. Rather than buy the things your kids ask (or beg) for, encourage them to save up to buy it themselves.
This isn’t to say you should never buy things that are on their wishlist. Birthdays, holidays, and special occasions are a great time to do just that.
But if they are just asking for something merely because they want it, it’s a great opportunity for them to put in the work to make it happen.
As an alternative, you could even tell them that you’ll match their savings OR tell them that if they save $X of their own money to put toward the purchase, you’ll take care of the rest.
For example, if they’re saving up to buy a $5000 car, you can either match them once they hit $2500 or tell them that if they can save up, say $2000, you’ll cover the remaining $3000.
This will not only teach them how to save up for the things they want but will also make finally getting that thing feel so much more meaningful because they worked for it.
Show them how to budget
Of course, another big thing to teach your kids about money is how to budget it. You can start off by talking to them about the importance of knowing how to save AND spend money. Then tell them that a great way to make sure they do it wisely is to plan ahead with a budget.
Have them start out with a set monthly income (either real or imaginary) and then list out their expenses. These can be things they want or need to buy. They should keep in mind how much they want to save by the end of the month (either for something specific or just to have money set aside for emergencies.
Have them write down the exact amounts they will allocate for each item in their budget. As long as their remaining balance is 0 or more, they’ve successfully set a budget.
Take them shopping with you
Another easy way to teach your kids about money is to have them come with you when you go shopping. This provides them with the opportunity to watch and learn how to make solid buying decisions.
You can teach them how to use coupons, compare prices, take advantage of sales/special offers, and more. It can also show them how to show restraint when they see something they want to buy that’s out of their budget.
Talk about stretching your money
Speaking of using coupons, it’s also a great idea to talk to your kids about stretching their money. This can include using coupons, asking for deals, shopping during sales, shopping at places like Goodwill, thrift stores, and consignment shops, and also shopping in bulk at places like Sam’s Club and Costco.
Set up a bank account for them
Part of managing your money is having a safe place to keep it. That’s where bank accounts come into place.
Find out if your bank has checking and/or savings accounts for minors and help your child get set up with one. This is also a great time for them to ask a banker any questions they may have about having and managing a bank account.
Get them a prepaid debit card
If you don’t want to (or can’t) open a bank account for your child, another option is a prepaid debit card. This can help them have a taste of financial independence, help them practice making good spending decisions, and give them a chance to gain confidence in their money management skills.
And since it’s prepaid, you (and they) don’t have to worry about them over-drafting by spending more money than they have in their account.
Talk about credit and debt
Last, but certainly not least, have a talk with your kids about credit and debt. Talk about how it works, why building credit is important, how debt can negatively impact your life, the importance of paying back what you owe, and all the other lessons that can help them make decisions that positively impact their credit score and keep them from accruing debts they can’t manage.
I hope that these 10 tips come in handy as you help your teens learn how to save, spend, and stretch their money. It’s definitely a skill set that will make a huge difference throughout the course of their lives!