Teaching Teenagers Financial Responsibility: A Parent’s Guide

Parents, here’s a wake-up call: it’s your obligation to set your kids up for future success. 

While the education system significantly moulds a teen’s learning experience, some matters are best taught in the household—and one such matter that parents should drill into their teens’ heads is financial literacy. 

Understanding how finances work and how they should be managed is a crucial life skill that can pave the way for your teen to live a stable and prosperous life in adulthood.

While concepts like filing taxes and taking out a mortgage may fly over their heads at this time of their lives, there are many ways you can provide age-appropriate learning to your child to equip them with the knowledge and habits needed to handle their finances properly. 

In this parent’s guide, we’ll give a rundown on how you can teach financial responsibility to your growing teens. This information will hopefully help them become more financially savvy and overcome common bad habits, like impulsive spending and mismanaged priorities.

Let’s jump right into it!

Encourage Them to Save to Meet Financial Goals

Teenagers may not be rich in money, but they’re rich in time and potential. As young as they are, it’s important that they set goals for themselves in both the short and long term to help them attain a better life for themselves during adulthood.

These goals can come in various forms. Buying a car or a new phone, for instance, are common goals teenagers may set for themselves that they’ll have to proactively work towards.

Life milestones are also things you should remind them about. 

For instance, if their dream job is to become a doctor or lawyer, then they’ll need to set a goal that allows them to achieve that status—aka, get a college and further studies degree. And in order to realise that, they’ll need to save money for tuition.

Teenagers can even set goals as far away as retirement. This can make them more comfortable when the time does eventually arrive.

Of course, to realise these goals, they’ll need to learn how to save money.  

As a parent, teach them the concept of delayed gratification. Encourage them to allocate a portion of their allowance, gift money, or earnings into a savings fund. About 30% or more would suffice. Tell them to avoid spending on impulsive purchases online or out in the malls. 

By encouraging teenagers to save, you can help them build a secure financial foundation. In turn, this can make them more ready to take on adulthood by its horns. 

For more information, see this page about helping teenagers manage money by Westpac.

Teach Them How to Budget

One life skill that’s best learned early in life is budgeting. This financial activity essentially means managing one’s finances in a controlled manner. 

While your teen may not be spending on house bills just yet, they’re bound to incur some expenses here and there. A budget tracker should track those cash outflows, as well as cash inflows such as allowances and gift money.

There are many budget-tracking tools teenagers can utilise. People commonly use a budget template from a spreadsheet app like Google Sheets or Microsoft Excel. Besides that, there are apps that are specifically built to help individuals budget their income and expenses. 

Besides tracking cash flow, a budget can also be used to inform teens on their spending habits. 

They can break down their expenses and see where their money goes over the past months, for instance. This can help them make behavioural decisions to help them achieve crucial financial goals—like not going into debt for the month.

As a parent, it’s important to teach them how to budget and to stick with it. This way, they can learn to live within their means during adulthood while still having some money left over for other financial goals. 

Get Them to Build an Emergency Fund

Another way parents can instil financial responsibility in their teens is by explaining the concept of an emergency fund to them. This fund serves as a financial cushion in case of unexpected situations. Think of medical emergencies, car maintenance, and repair work around the house.

Encouraging them to set up an emergency fund can help them gain peace of mind in case they find themselves in a financial pinch. 

It’s not meant to be interchangeable with their savings fund. Rather, its sole purpose is to be taken out and used when an expensive emergency arises—which is a non-zero chance.

As a rule of thumb, a solid emergency fund should be about six times a person’s monthly salary. For teenagers, having at least a few month’s worth of allowances should suffice—but the more, the better. 

By encouraging your teenager to have an emergency fund, they’ll be prepared in case of sudden emergencies. This concept can also be carried with them into adulthood—which can make them and their future family ready to handle future surprise incidents.

Be a Financial Role Model

Teenagers and children closely mirror those around them, especially their parents. As such, you must demonstrate responsible financial behaviour when you’re around them.

For instance, if you want to encourage them to save and budget, then you should also show that you’re upholding these financial habits. If you don’t want them to spend so much on trivial items, then refrain from buying random things online and rationalising the purchase.

Besides modelling good financial behaviour, also use your parental wisdom as a way to provide practical insights to your teen. 

Provide anecdotal experiences to them about the consequences of actions you may have done in the past, like overextending your budget or detracting from a long-term goal.

By incorporating real-life events into your advice, you can more readily leave an impression on your teenager and allow them to avoid making these mistakes themselves.

Let Them Experience Hard Work

Raising a spoiled teenager isn’t only tough for the parents, but it can also make it harder for the teen to adapt to the cutthroat world once they’re older.

As such, try to increase their responsibilities around the house. Let them do chores to harness their sense of independence and capabilities. This can improve their work ethic, which is something they can carry along with them to adulthood.

Furthermore, encourage your child to take on part-time jobs, freelance work, or casual roles whenever possible. This can help them gain valuable work experience as well as some extra funds. 

Plus, the earlier they get to experience working for money, the quicker they’ll be able to adjust to the ways of society and the real world.

Help Them Make a Bank Account

Every individual should have a bank account to store and manage their money, and yes, this includes teens. 

Besides securely storing funds, a bank account also exposes teenagers to financial management tools—which can lay the groundwork for them to build solid financial habits.

More specifically, a bank account helps individuals track their balance and access a plethora of money management features, like automated savings functions and direct deposit capabilities. 

It can also help teens build credit early, which is useful when they apply for loans later in life.

Furthermore, certain perks like debit cards are also only accessible if you have a bank account. As such, it’s essential for teens to make a bank account if they wish to access these things. 

Provide a Crash Course on Adult Financing Terms

While your teen may be too young for complex adult financing terms, it’s good to expose them to these terminologies sooner rather than later. 

Start by explaining basic concepts like credit scores, mortgages, interest rates, and investment options and how they’re used in real-life scenarios.

If they have trouble understanding a concept, use simpler language or provide educational resources to further supplement their learning.

By taking these steps, you can help them transition into adulthood with greater confidence, particularly in the field of finance.

Good luck!

*This is a collaborative post