Teaching Financial Responsibility to Teens Is Easier than You Think!
Something interesting happens when it comes time for parents to talk with their kids about financial responsibility:
They (the parents) start to freak out a bit.
Well, maybe not all parents. Perhaps you're a super confident money ninja of a parent.
However, the anxiety about talking to our kids about money and financial responsibility is widespread.
It probably depends on the person, but...
Finance author Beth Kobliner has a theory:
"Most parents feel they don't know enough themselves. The mere mention of the topic causes anxiety, if not outright terror, in many of us because, well, what if we answer wrong and send our kids careening into a life of debt?"
-Beth Kobliner, via her book "Make Your Kid A Money Genius (Even If You're Not)"
VERBIAGE INSTEAD OF WHAT'S THERE:
57% are not on top of their finances
27% don't know where to start
30% ignore their finances because it's overwhelming or boring
She further explains that many parents feel that they've not handled their own finances well and fear their kids discovering that their parent is a hot mess themselves.
Here's the good news:
You don't have to be a money genius to teach your teens to be a money genius.
The financial mistakes that you've made can serve as lessons that you can use to teach your kids.
Why Teaching Your Teens Financial Responsibility Is Important
When it comes to financial responsibility, our kids face money challenges that previous generations didn't encounter.
- Social media feeds envy
- Parents carry credit card debt to provide status symbols to their kids, creating an illusion of wealth that is really just debt
- Easier access to college via federal student loans, which result in crippling debt
- Having instant access to savings accounts via debit cards and instant online transfers
- Online shopping
- A culture that encourages excess (think: Keeping up with the Kardashians)
- Media glamorization of materialistic values
"As our elders, it's [brushing aside kids' questions about money] completely irresponsible, and it's just blatant institutional adultism. I say this because I hear it every day. 'You're the future of this and that, Jacob. You're the torchbearer.' But how can we be the future if you're not going to teach us about money, which is our future?"
Jacob Swindell-Sakoor, a high school sophomore delivering a keynote address to 2,000 teachers and students in Seattle in 2013 (via "The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money" by Ron Lieber)
All of the data shows one thing for certain:
Kids want to learn about money.
They're desperate to learn about it.
Even if it means learning financial responsibility right along with them...teach them.
Our Methodology for Data and Statistics
For statistics and data on financial responsibility, we primarily used the following two studies.
If we use data from any other source, we indicate that in the text by linking to the other source.
Charles Schwab 2011 Teens & Money Survey
One of the best data sources to date on the topic of teens and money is the Charles Schwab 2011 Teens & Money Survey.
Here are some of the findings:
- Seventy-seven percent of teens surveyed feel they're knowledgeable about money management, budgeting, saving, and investing (they're not).
- The majority of them (64 percent) were surprised at how little they ended up knowing about managing money.
- Only 38 percent feel confident they know how to establish good credit.
- Balancing a checkbook? Only 35 percent of teens know how.
- An alarming 31 percent know how credit scores, credit card interest, and fees work.
- This is encouraging: 86 percent would like to learn more about money before making mistakes as adults.
- Equally encouraging: 75 percent say that learning more about money is one of their top priorities.
- In every study we read, this keeps coming up: kids learn about money by watching their parents.
- Boys earn more than girls.
- However, girls report saving their money better.
- Their expectations of future earnings are higher than the reality.
The 10th Annual Parents, Kids, & Money Survey: the good, the bad, and the ugly (with a little bit of awesome!)
In 2018, T. Rowe Price released their 10th Annual Parents, Kids, & Money Survey. The survey respondents were aged 18-24, with demographics that represent the ratios in the U.S.
Here are some of the findings from the survey:
- Kids actually learn a lot in financial education classes at school. However, only 39 percent of high school seniors have taken the courses, and only 28 percent of juniors have.
- Only 53 percent of kids who took financial education classes feel that taking the classes prepared them for adulting.
- About 34 percent of kids say that their parents had more influence on their financial habits and behaviors than financial literacy classes had.
- Most kids didn't get a savings or checking account until they were 18 years old.
- Also, most parents didn't start talking to their kids about money until the kids were 15 or older.
- Seventy-seven percent of teens surveyed actually say they have a budget.
- Of the young adults surveyed, 46 percent include savings as a budget line item, with 54 percent of them working towards a financial/savings goal. This is encouraging news!
- More good news: 48 percent say they have an emergency fund.
When to Start Teaching Your Kids Financial Responsibility
When should you begin talking to your kids about financial responsibility?
Much earlier than you probably think.
Research studies have shown that children as young as three can grasp economic ideas like value and exchange. They can also learn and practice delayed gratification.
As your child grows older, the conversation will change, and the concepts will become gradually more complex, but starting today is the best head start you can give your kids in learning financial responsibility.
"I tell students what a valuable asset they have in themselves. I'd pay a good student plenty of money in exchange for 10 percent of what they produce for the rest of their life."
Warren Buffet, at a 2001 annual meeting of Berkshire Hathaway (via "The Motley Fool Investment Guide for Teens" by David Gardner and Tom Gardner)
9 Mistakes to Avoid When Teaching Your Kids Financial Responsibility
When it comes to money, everyone has made mistakes, and few people are "experts" on financial responsibility. For example, even some of the wealthiest people in the world have spent unwisely.
Don't believe me?
Check out any pop culture website for the latest stories of celebrities blowing money on million dollar parties, private islands, and other eyebrow-raising things.
But you can do this:
Avoid these mistakes when teaching your kids financial responsibility.
1. Oversharing your own foolish money mistakes
By all means, answer questions honestly, but sharing an anecdote about emptying your bank account to take an impulse vacation may add glamour to what was likely a regrettable decision.
In other words:
Choose wisely which financial mistake stories to share with your kids.
2. Handing cash over to your kids without teaching them anything
You can't expect your kids to learn about financial responsibility if the only thing you're giving them is money.
Here what they need:
More than cash, what they need from you is guidance.
3. Doing all the talking
Allow your kids to ask questions, and remember:
There are no stupid questions.
Also, if you have a partner in parenting your teen, involving them is important.
4. Keeping up with the Kardashians
It's going to happen to you if it hasn't already.
"But Taylor's parents let them buy...."
Every family has different priorities. Your family's goals will differ from those of the family next door.
Sometimes it's tough, but:
Try to avoid comparing yourself and your finances to those of other families.
5. Giving them more money than they actually need
Even if you can afford it, avoid the temptation to hand over wads of cash to your kids.
Most people will have to work within a budget in their lifetime.
Start teaching your kids early that spending in excess can lead to heartache and an empty wallet.
Not to mention...
bad credit and other money woes.
6. Flaunting your own bad money habits in front of your kids
You can say "do as I say, not as I do," but the fact remains that kids learn financial responsibility primarily by watching their parents.
Teaching them about the evils of credit cards and letting them see you whip yours out to buy groceries will discount the lessons you're trying to impart.
So, do this instead:
Regardless of any bad money habits, you may have (and we all have them), do your best to model responsible money habits for your kids.
7. Promoting a gender money gap
Parents are more likely to talk with boys about money and investment, while girls get left to learn on their own.
Wow. That's harsh, you say?
The Charles Schwab 2011 Teens and Money Survey Findings show that 24 percent of boys received money guidance from parents, while only 16 percent of girls received similar advice.
This is true:
In spite of the fact the girls are more likely to ask questions about money (T. Rowe Price study).
And finally, these disturbing stats from the 2014 Charles Schwab Money Myths Survey.
- Fewer women than men consider themselves to be financially savvy
- Only 36 percent of women believe they'll have enough for a comfortable retirement (compared to 50 percent of men)
- And most concerning: more than twice as many women as men do not view themselves as the financial decision-makers in their households
Data doesn't lie.
The gender money gap is real.
8. Raiding their piggy banks
It's almost embarrassing to mention this. I mean, really?
Most of us would positively balk at the mere thought of taking money from our children. However, studies show that 30 percent of parents do it.
They're not necessarily stealing money from their kids. Here's an example of what commonly happens:
The pizza delivery guy is walking up to your door, and you suddenly realize you're out of cash, so...
First of all, don't do this without asking your kids first. Then, pay them back promptly.
Here's an idea: teach them to charge you interest. That'll teach you.
9. Rewarding good behavior with money
Fifty-three percent of parents reward a child's good behavior with money.
While this may occasionally be appropriate, such as a bonus when they receive good grades, kids should generally be taught that good behavior is the expected standard with no expectation of reward.
13 Important Money Issues to Cover with Your Teen
How do you know exactly what to cover when it comes to talking to your teen about financial responsibility? There's so much to cover, it almost seems overwhelming.
Let's start at the beginning.
1. First things first: EVERYTHING in life costs money
When your feet hit the floor in the morning, you start spending money.
Turning your kitchen light on and starting the coffee pot?
Hello, electric bill.
Taking a shower and brushing your teeth?
There you are, water bill.
Breakfast? It costs money even if you eat at home. And it snowballs from there throughout the day.
Everything costs, including the car you have to pay for via the cost of vehicle and insurance, gasoline, bills due today, food, and the clothes you wear.
The. Shoes. On. Your. Feet.
Being alive costs. Even in prehistoric times, life was expensive. People had to get up every single day of their lives and find food and shelter, and doing so cost them their time even if they didn't have actual dollar bills and coins.Pixabay
Speaking of cavemen and cave-ladies spending their time on survival, remember this:
Time is money. And there is no more valuable asset than your kids' time.Pixabay
2. Don't even think about credit cards
According to the T. Rowe Price survey, 32 percent of parents have a credit card debt between $1,000 and $4,999.
More disturbingly, 48 percent have a credit card debt higher than $5,000.
Here is why that's so disturbing:
The study showed that 29 percent of teens and young adults use credit cards regularly.
Our kids aren't off to a very good start.
We can help fix this:
Talk to kids early about credit card debt. Perhaps most importantly, openly discussing the outrageous interest on credit card debt could deter them from going down this road.
Data from seven universities found that if parents argue about money in the home, their college-age kids are more likely to have $500 or more in credit card debt.
3. Activity: so you "need" a limo for prom (needs vs. wants)
Kids aren't born knowing the difference between "need" and "want."
We've all heard this:
Our children say they "need" things when these items were actually "wants." Moreover, sometimes even we as adults find the line between the two to be blurry.
However, it's an important distinction to make and is absolutely essential to your teen learning financial responsibility.
Here's an activity to do with your kids:
- Grab a notebook and pen and sit down with them.
- Have them make a list of things that they believe are their current needs. It can be a short list or a long list.
- Tell them to be specific. For example: new shoes, limo for the prom, etc...
When they're done with their list, discuss together each item. Have them ask themselves the following questions:
- Can I wait to make this purchase?
- What would happen if I don't get this item?
- Would something catastrophic occur?
- Is this an item I can buy used?
- What would I suffer if I didn't get this item? (embarrassment? shame?)
- How many hours do I or my parents have to work to buy this item?
- Are there any alternatives (cheaper or free) to this item?
The goal here is to have an honest and respectful conversation.
This is important:
The minute scorn enters your voice, they retreat. You're talking about adult topics with them. Give them the respect that such a conversation deserves.
If they begin to become heated or impatient:
Redirect them with your own positive responses.
4. Get a job, already!
"How to get a job" is a whole 'nother article. However, get a job they must.
Preferably as soon as they legally can.
Even if your teens don't necessarily need a job for money, having the responsibility of employment is essential to teach them work ethic and financial responsibility.
TITLE: Tips for Helping Your Teen Get a Job
5. Or...entrepreneurship for teens?
There's another option for teens to earn money:
The teen years are the perfect time for kids to learn about starting their own business.
Some ideas for teen entrepreneurship:
- House cleaning
- Yard work
- Lemonade stand
- Yard sale
6. Payday loans
Begin talking to your teen about payday loans the day they start their first jobs, if not before.
As a $9 billion business, the impact that these loans have on low-income people in the U.S. is insidious.ConsumerFinance.gov
These companies are predators.
In some states, the interest payday loan companies charge is as high as 600-700 percent.
Here's the terrifying part:
To get a payday loan, all you have to do is walk into an office and produce the following:
- Valid ID
- Proof of income
- Bank account
Once your teen starts working, he has all of these.
Research studies have shown that the stress and anxiety that comes with payday loans can actually make you physically ill.
Here's the worst thing about these loans:
The companies roll them over and allow borrowers to refinance the loans, so people end up having every paycheck for months tied up in these loans.
"It's normal to get caught in a payday loan because that's the only way the business model works. A lender isn't profitable until the customer has renewed or re-borrowed the loan somewhere between four and eight times."
-Nick Bourke, consumer finance director at Pew Charitable Trusts (via CNBC)
The financial mistakes that you've made can serve as lessons that you can use to teach your kids.
7. Should you give your kids an allowance?
The T. Rowe Price survey showed that 53 percent of teens report that they receive an allowance but have to earn it.
Whether or not to give kids an allowance is hotly debated.
However, one fact remains:
If your kids don't have money of their own, they can't learn to manage it.
But there's a middle ground:
“I find the allowance debate to be a diversion. To me, the far more crucial thing is practice–early and often. It’s critical for parents to make sure their kids get regular hands-on experience making real spending, saving, and giving decisions with a modest, constrained supply of their own income. I don’t think the specific source of that income (unconditional allowance, chores, outside jobs, or a hybrid thereof) is hugely important, as long as it’s thoughtful, consistent, clearly communicated, and in line with the family’s values. My bottom-line advice to parents:
Don’t let agonizing over the allowance vs. chores debate get in the way of getting your kids started with hands-on money practice. Pick an approach, get started, and tweak it over time.”
-Bill Dwight, family finance editor, Famzoo.com
8. I'm not broke because I have checks!
Whether as a kid yourself or as a parent, you've probably taken part in a conversation similar to this:
Parent: "Not today, we don't have any money."
Kid: "Just write a check!"
And hopefully, after the parent explained to the kid how that all works, they understood and never wrote a hot check.
Once your teen has a checking account, it's your responsibility to teach them how to use it.
- Show them how to write a check
- Help them order checks online
- Go to their bank's ATM machine and teach them how to make a withdrawal and a deposit
- Show them how to buy something at the grocery store to get cash back
A checking account is a huge responsibility, but it's a must for teaching teens financial responsibility.
Choosing a bank
Your kids have grown up in a digital world. Likely they have no memory of a time without the internet. Therefore, it stands to reason that they will want to do their banking online.
But that's not balanced:
As of this writing, it's also useful for them to have the experience of walking into a bank and conducting business. This will be helpful to them in the future when it comes to applying for a mortgage or car loan, for example.
Tips for Choosing a Bank
FOCUS ON THE NUMBERS
Try to find a free checking account or one with modest monthly fees.
NO MINIMUM BALANCE REQUIRED
There will be times when your teen doesn't have a lot of money in their account. Make sure their checking account doesn't require a minimum balance for avoiding monthly fees.
NO LIMITATIONS ON NUMBER OF TRANSACTIONS
Some banks start charging money after a certain number of transactions. If your bank mentions that, walk out the door!
FREE ATM ACCESS
Your bank should have an ATM machine and free access to use it.
CONSIDER A HIGH SCHOOL ACCOUNT
Most banks offer a special high school account option. The account is usually created under the umbrella of the parent's checking account and has no fees. It converts to a regular account when your teen graduates from high school.
FIND A BANK IN YOUR AREA
Online banking is great, but it's helpful to have an actual physical bank that's near where you live.
MOBILE AND ONLINE ACCESS
Even though we recommend finding a bank in your area, make sure your teen's bank has a great app and online services. Today's teens are digital natives and will expect to be able to bank from their smartphones.
UNDERSTAND THE TERMS AND CONDITIONS
What are the monthly fees? How much does an overdraft cost?
DECLINE OVERDRAFT PROTECTION
Have your banker set up your teen's account so that if there's no money, there's no spending. This could save them tons of money in overdraft fees.
DON'T BUY CHECKS AT THE BANK
They're much cheaper to buy online. Do some research to find the best places to buy checks online.
FIND THE BEST ONLINE BANKS
If you go with an online bank account, do some research to find the most reputable online banks.
9. Yes, they also need a savings account
Do kids really need both a checking and savings account?
The (very) abbreviated version:
Young children were each given a marshmallow. They were told that if they didn't eat it immediately, they'd get a second marshmallow later.
From behind a two-way mirror, researchers watched as the kids struggled with this.
Predictably, some kids chose to gobble up the marshmallow right away, forgoing a chance at a second marshmallow.
However, more patient kids held out for that second marshmallow.
Here's the crazy part:
The researchers tracked these kids throughout their lives and guess what? The kids who practiced delayed gratification:
- Had better relationships
- Achieved higher educational levels
- Scored higher on the SAT
So if you have the kid who gobbles up the marshmallow, does that mean your child is doomed for a life of failure?
Of course not.
However, what this study demonstrates is that learning to appreciate the rewards of delayed gratification can pay off in life.
And THAT is why your child needs a savings account. To teach them the value of putting aside some short-term desires to save for a long-term goal.
With that said, can they also just save in a piggy bank or money jar at home?
However, storing money safely in the bank is a good practice.
Furthermore, having a savings account will teach them the magic of compound interest.
10. The emergency fund
Only 47 percent of parents surveyed in the T. Rowe Price study have an emergency fund.
Furthermore, those who do have an emergency fund are still terrified. Here's why:
For 65 percent of them, their emergency fund will cover their family's expenses for three months or less, with most only having enough for one month (or less).PublicDomainPictures
As if that's not enough:
Far too many parents used their emergency funds for non-emergencies that include vacations, holiday spending, and paying off debt.
Teach your kids that their first priority in saving is to establish an emergency fund to cover their expenses should they lose their job for any reason.
11. The company they keep: How to teach teens to be financially responsible when their friends aren't
Your teen is going to be around other teens with all sorts of different financial issues.
Some of their friends may have parents who are as responsible as you are about teaching financial responsibility.
Then there are the other teens:
The ones whose parents just hand over cash and allow them to spend it however they choose.
The best money tip you can ever teach your kid is this:
What other people do with their money isn't what you get to do. Your family has its own set of rules.
Period. Full stop.
12. So you want a car, do you?
When your kids start driving, a couple of things will happen to you:
- You'll worry about their safety.
- You'll worry about how the heck you're going to pay for the cost of your kid to drive.
It's impossible to predict an accident, but you can cover the following with your teen:
- Cost of vehicle maintenance (oil changes, tires, etc...)
- Reasons to buy a reliable used car instead of a new one
- Cost of insurance and other expenses (tax, title, license, vehicle inspection)
- The cost of bad driving (not only accidents but hikes in insurance rates)
"Share the [insurance] policy and the huge jump in rates for the child compared to the parents. Don't forget to also show the cost of gas and maintenance."
-Ted Beck, CEO, National Endowment for Financial Education (via CNN Money)
13. Teaching them to give back
One of the most important things you can ever teach your child is how to give back to society.
Here's what we recommend:
Have your teen set aside 10 percent of their earnings for giving.
They can give via automatic donations to organizations like the Red Cross, for example. Or if they go to church, they can tithe 10 percent of their earnings.
It's not the amount that counts here. Even if 10 percent of their earnings is $1, you're teaching them the importance of giving back.
Don't discount the value of their time. If they don't make enough money to donate to their favorite charity or church, they can donate their time via volunteer opportunities.
9 Quick and Dirty Tips for Financial Responsibility
Here's a quick little chart to share with your teen to teach them financial responsibility. However, they're great tips for anyone of any age!
9 Quick and Dirty Money Tips for Teens
List for the infographic:
- Spend less than you make
- Take care of your stuff
- Spend an hour per week learning about money and finance
- Always know your credit score
- Evaluate your budget every month
- Pay your bills on time
- Save your receipts in a manilla envelope labeled with the year
- Pay cash for reliable used cars (say NO to car notes!)
- Use only your bank's ATM
4 Steps to Creating and Following a Budget
Now that they have a good idea of the ins and outs of financial responsibility, your kids need to create their first budget.
This is the best way:
Start a budget is by sitting down with your teen, a notebook, and a pen. After that, choose a budget method to use.
1. List their expenses
List out all of their expenses. Some of these are expenses that you probably cover. That's OK. List them anyhow.
- Clothing (include coats, sweaters, hats, tights)
- School supplies (paper, pencils, notebooks, backpacks)
- Entertainment (books, games, subscriptions)
- Outings (movies, sports events, meals out with friends)
- Lunchbox (a new one every year)
- Breakfast (if they don't eat at home)
- Haircare and other personal care
- School functions (prom, homecoming)
- Auto insurance
- Vehicle maintenance
- Cell phone
Going from this list, decide together which of those expenses you as the parent will cover. The reason we suggest including even those expenses on this list is so that they will fully understand that everything costs money.
Knowing the actual cost of everything they consume can be eye-opening to most kids in America.
An added bonus:
They'll have a deeper appreciation for what you do for them.
Once you've refined the list of expenses, you will have a total of the expenses which they'll be responsible for.
2. List their income
- Tips at work
Together, figure out what they'll need to do to make sure their income from all sources is higher than their spending expectations.
3. Choose a budget method
If your teen is very computer savvy, you can help them create a budget with an Excel spreadsheet.
However, there are a couple of more simple methods that give them a great hands-on experience with budgeting and learning financial responsibility.
Three jars method
With the three jars method, they simply put their money into three jars:
With the envelope method, they write out their monthly budget line items on different envelopes.
4. Begin following the budget immediately
Now that your kiddo has a solid budget in place, they should start following it with the first dollar they earn.
Then, they should revisit it weekly to start, and monthly once they're confident.
The Elephant in the Room: College
Who should pay for their college: you or them...or both?
Only 34 percent of parents have saved for their kids' college education, according to the T. Rowe Price study.
The fact is, it's harder than ever to save money.
But one thing is certain:
If your children are going to college, someone's going to be spending a lot of money.
According to T. Rowe Price, 49 percent of teens going into college either have or expect to have student loan debt.
Whoever pays for the bulk of your child's education, avoiding student loans is a good practice and an important part of financial responsibility.
Want to set your kid up for a lifetime of financial anxiety? Encourage them to get a bunch of student loans.
We know...college is expensive.
It's not just about tuition. Textbooks are expensive. Room and board is expensive. Even sodas in campus soda machines are expensive.
But who should pay for college? You or them?
It depends entirely on your situation and what you decide as a family.
However, if you expect your kid to contribute to their own college expenses, we recommend setting up an entirely separate account for that.
Maybe their tuition and books are going to be covered by you, scholarships, loans, or all of the above.
With that said:
It will still teach your kids financial responsibility if they save their money to help cover some of their own expenses.
Resources for Teaching Your Kids Financial Responsibility
We've scoured the web to find some of the best resources for helping to teach your kids financial responsibility. Below you'll find some recommendations for books, websites, and apps.
1. "The Young Entrepreneur's Guide to Starting and Running a Business" by Steve Mariotti
2. "What All Kids Should Know About Savings and Investing" by Rob Pivnick
3. "Smart Money Smart Kids: Raising the Next Generation to Win with Money" by Dave Ramsey and Rachel Cruze
4. "The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money" by Ron Lieber
5. "Why Didn't They Teach Me This In School?: 99 Personal Money Management Principles to Live By" by Cary Siegel
6. "The Motley Fool Investment Guide for Teens" by David Gardner
7. "Make Your Kid a Money Genius (Even If You're Not): A Parents' Guide for Kids 3 to 23" by Beth Kobliner
The U.S. Mint's H.I.P. Pocket Change
Apps and Games (designer_start) Please put these on a phone in app form:
Their bank's app
GreenStreets: Unleash the Loot!
The Game of Life
EveryDollar app by Dave Ramsey
Adding It All Up
Money is a tough topic to cover at any age. However, the rewards of teaching your kids financial responsibility will pay off for them more than almost anything else you teach them.
Kids really do want to learn about financial responsibility, so you have a captive audience.
Do you have any tips for teaching your teens about money? Share your successes in the comments!