How many useful financial management skills do you wish someone had taught you early on in life? Do you wish you’d established a line of credit, learned how to balance a checking account, or started investing as a teenager?
In even a short amount of time, you can teach your teenager financial lessons that will be the basis of their financial freedom in the future. The teenage years may present a challenge for parents when it comes to teaching the importance of saving money for the future, as teenagers often don’t see much past the upcoming weekend.
Similarly, striking a balance between allowing them to make their own decisions about their money and giving them helpful guidance can be difficult. However, the teenage years are an ideal time to teach kids how to become financially independent.
Here are some basic financial lessons that will set them on their way to long-term wealth and financial freedom!
Table of Contents
- 1. Financial independence
- 2. Find a job
- 3. Learn money-management skills
- 4. Opening a bank account
- 5. Teach them budget basics
- 6. Set financial goals
- 7. Understand the pros and cons of borrowing
- 8. Learn about interest
- 9. Building credit
- 10. Earn interest on their savings
- 11. Investing wisely
- It is never too young to gain financial freedom
1. Financial independence
Kids go to university or vocational schools near the end of their teen years. It’s the start of their adult life, which makes it an essential time to teach finances for teens.
Financial independence is about more than just paying bills or renting a house. It also involves a lot of tools and thought processes that help to build long-term wealth.
You can find a lot of information online that will simplify complex financial decisions and help your teens become financially savvy. But here are some other ways to build financial independence!
- Help your teen set up a student credit card or become an authorized user on your credit card to start building good credit history.
- Set up a UTMA account for your teen and teach them all about investing as a lifelong tool for setting them up for financial success.
- Have them open a personal checking account and a savings account. You can encourage them to open a joint account with you as a co-signatory so that you can help monitor their financial decisions until they turn eighteen.
- You can also use your own RoarMoney, Credit Builder membership, or investment account to walk your children through all of these financial lessons.
- Once they become an adult, you can encourage your child to open their own MoneyLion accounts as well.
2. Find a job
A part-time job can be a great way for your teen to learn that hard work pays off. It can teach them the importance of living within their means, too.
Depending on your family’s income level, having your child find a job could be a win-win. A teen’s paychecks can replace their allowance, allowing teens to fund most of their own expenses with money they earned from employers instead of money from their parents, which yields greater independence for them.
Depending on your teen’s age, they could get a babysitting job or start doing yard work. Another idea is part-time employment at a restaurant, store, movie theater, or other local business.
Teach your teen how to search for jobs as well as how to apply and how to prepare their resume. All of these tips could help them succeed during interviews.
3. Learn money-management skills
Money management is an essential life lesson that helps teens build long-term wealth no matter what their income looks like. Here are the money-management basics that you should cover with your teen!
- Teach them how to maintain a budget.
- Make sure they know how to calculate their income and expenses.
- Help them calculate how much money they will owe in taxes.
- Instill the importance of planning ahead and saving before splurging.
- Inform them about best practices when saving up for special purchases.
- Offer to help them set up an investment account so they can watch their savings grow.
Practicing how to save as a teen will make the transition to adulthood and maintaining financial independence that much easier. If you need extra help setting your teen up for success, RoarMoney can help! It’s easy to sign up for and you can get a virtual card instantly.
4. Opening a bank account
Opening a bank account with a local credit union or bank is one way to give your teen immediate financial independence. Most banks and credit unions will allow an account to be opened in a child’s name with an adult as the co-signatory.
A checking account is usually the first place your money will go once you’re paid via paychecks or direct deposits. It’s also where money leaves when you make purchases. Of all incoming college students, 80% already have a checking account.
Even if they don’t sign up for an account at the same bank as you, explain the specifics of why it makes sense to have a checking account. Focus on the importance of paying attention to fees, ATM networks, deposit minimums, and other relevant factors.
Depending on where you live, you’ll likely need to be part of their account, meaning their checking account will be a joint account until they turn eighteen. If a full-fledged account is too much for your teen right now, consider a prepaid debit card with a set amount of money loaded on it an alternative to a regular checking account.
New consumer protection laws have helped prepaid cardholders, making it less likely that your teen will have to agree to expensive fees. You can also open a RoarMoney account for access to a virtual card instantly. This will give your teen a real-life example of how to open an account without needing to go to the bank!
5. Teach them budget basics
There’s a common misconception that teens aren’t the most conservative when it comes to money. However, many personal finance experts suggest that teens should be given more financial responsibility, not less.
And with teens on the cusp of adulthood, the concept of a budget should be at the very core of their understanding of how money works. The sooner they learn about budgeting, the easier saving money will be for them.
One way to teach your teen how to budget is to put them in charge of a certain amount of money that can cover their basic expenses. For example, give them enough money to pay for gas, clothing, and entertainment expenses. From there, it’ll be up to them to budget and monitor their spending. If they run out of money, they’ll learn that sticking to a budget is key to their success.
If your teen has a part-time job, encourage them to use their paychecks in the same way. Help them set up a budget that makes it possible for them to cover their basic expenses, save for their future, and still have fun!
For teens, learning how to live on a budget right out of the gate will be far more helpful than just learning about budgeting as an abstract idea. When they experience what it means to have a budget, it will help them develop smart spending and saving habits.
You can also use the MoneyLion Financial Heartbeat spending tracker to show your child how budgeting for kids can be a way to work towards their goals. Help them understand that budgets aren’t supposed to be limiting. They’re important!
6. Set financial goals
You can also help your teen along the way by encouraging them to keep a spending journal. Show them how to build a rainy-day fund or save for a big-ticket purchase.
Instant gratification is a very prominent way of thinking in our society, but having to wait for something we want by saving for it is more significant. Delayed gratification builds confidence in goal-setting as well as a realistic perspective on how an independent financial life really works.
Encourage your children to set specific and detailed savings goals, such as a goal to make x amount of money per month or to save a certain percentage of their total income every month. Some families like to teach their kids to save 20% of whatever they get so that it automatically goes straight into their savings accounts.
7. Understand the pros and cons of borrowing
Cash is king, but as your teen transitions into adulthood, they must understand how to safely borrow money. As many of us may have learned the hard way, you can do a lot of damage pretty quickly when you have access to a credit card.
In fact, a recent survey showed that 68% of Americans will make a major credit-related mistake before the age of thirty. Some examples include overspending, defaulting on a loan, or having an account go to collections.
Any of these experiences can cause dire consequences for a person’s credit report. It’s easy to lower your credit score without even meaning to, but a low score will make it difficult for you to take advantage of certain privileges financially as time goes on.
Explain to your child that when you borrow money, you’ll repay the loan alongside the interest that was accrued. So, finding the lowest interest by comparing annual percentage rates (APRs) is key.
Tell your teen that the longer they take to repay a debt, the more they will pay in interest. In other words, they’re paying somebody else additional money just to borrow money. They’ll pay exorbitant fees and their credit scores will suffer as a result of being financially irresponsible. This will help them see that borrowing money at affordable rates can be difficult.
Once your teen turns eighteen, suggest they join MoneyLion’s Credit Builder membership. It can help them establish credit and start them on a lifetime path of responsible credit usage.
8. Learn about interest
Teach your teen not only the consequences of borrowing but also the power of interest. It is never too early for them to learn about the concepts of credit, debt, and interest.
Here’s one low-risk way to teach the concept of interest. Offer your teenager a chance to earn interest on their allowance if they wait longer to collect it. If they receive $10 per week, tell them they’ll earn an extra $20 per week if they wait to collect their allowance at the end of the month.
This will teach them how interest can work in their favor and how their $100 can quickly become $1,000. However, make sure you also let them know that interest can work against them, which is what happens in cases of overspending on credit cards. In that case, their $100 purchase can end up costing them $400 or more.
9. Building credit
Teaching your teens about finances should include explanations surrounding the benefits and the usefulness of credit. It’s easy to go straight for scare tactics, but teens should also understand that credit can be a tool that they use to accomplish financial goals, like purchasing a car. Make sure they understand the balance between using credit and managing it wisely.
10. Earn interest on their savings
Compound interest is one of the greatest powers of the universe, and learning to use it through a savings account is a powerful tool. Help your teens open a high-interest savings account and calculate how much money they will have at retirement if they keep up their current and regular deposits in addition to compound interest.
11. Investing wisely
The number one thing most investors say is that they wish they had started earlier. It is never too early to invest.
Putting some of your teen’s earnings into a MoneyLion Investment account can be a great way to teach them the power of long-term investment and regular deposits. Show your child how investing works by letting them invest some of their money and manage it in your account first.
It’s also reasonable to put some of your child’s income toward longer-term goals, like their college education costs or even retirement. Discuss the economics of higher education relative to their current career choices. You can also consider opening a 529 plan or Roth IRA on their behalf to show them the magic of compound interest.
If you want to get your teen excited about investing for teens, consider having them read some of the many exciting books on the topic specifically for kids, including Rich Dad, Poor Dad for Teens, or How to turn $100 into $1,000,000.
It is never too young to gain financial freedom
Teens usually don’t fully understand what adulthood entails in terms of financial responsibility. By introducing basic budgeting and other money management skills to your teens early on, parents can ensure that their teens are financially ready when they begin their transition into adulthood.
From a MoneyLion investment account to a MoneyLion RoarMoney account, we have the tools you need to teach your teen all of the financial lessons they should learn. By doing so, you’ll help them reach for their goals and secure their financial future at a young age.
Can I open a child’s bank account online?
Yes, some banks and credit unions will let you open a child’s bank account online. You can also get a RoarMoney account with a virtual card to help your child understand real-world financial applications.
Can I gift stock to my child?
Yes, you can gift stock to your child. There may be taxes involved, so you should check with your accountant and explore the taxes surrounding stocks given to children. You do not need to sell the stock before gifting it to your child directly
Why are budgets important for kids?
Budgets give kids a sense of responsibility and control. They are able to work towards important goals while feeling a sense of responsibility for their actions and habits.