U.S. adults rated money management as the most important skill for kids to learn, according to the Charles Schwab 2020 Financial Literacy Survey. Money management ranked higher than the dangers of drugs and alcohol, healthy eating and exercise habits, and safe driving practices.
Teaching your teens to save their allowance is great—but good money habits should go much deeper. What they learn about spending and saving money now can set them up for success—or failure.
How can you help your teen be financially literate? Start with these five lessons.
1. Credit isn’t free.
The lesson: A debit card and credit card may look the same, but teens need to understand how they differ. Explain to them that credit cards are a great tool when used correctly. If not, a credit card can hurt them in the long run if they run a balance higher than they can pay off.
The action: Prepare them for their own credit card by letting them borrow money—plus interest—from the Bank of Mom & Dad. Don’t have enough cash for those new wireless earbuds? Put them on a payment plan, and if they don’t make payments, ask them to temporarily return the item to you. Help your teen understand that credit extends beyond purchases, and establishing good credit—making on-time payments and maintaining low balances—can help them buy a home or car in the future.
Get more help from AAA: The AAA Financial Education Center can help your teen (and you) gain the critical knowledge needed to create good money habits. Topics to learn more about include credit cards, financial foundations and more.
2. You need to budget.
The lesson: Many teens are likely to spend their allowance right away. It’s important to help them understand needs vs. wants and how to plan for what they truly have to spend. Showing them how to prepare a basic budget is a key step toward sustaining financial independence.
The action: Help your teen develop a budget that clearly shows spending vs. saving. Consider opening a personal savings account (AAA Banking offers high-yield savings accounts where their hard-earned cash can work for them by earning interest). Understanding where their money is going is a big part of money management skills, so encourage them to keep track of where they spend their money by using an app. Consider having them keep a wish list to help prioritize their spending.