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.

Identity theft is a problem that could impact your teen’s future credit. Some ProtectMyID options for AAA Members will alert you to any fraudulent credit activity using their name.

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3. The real cost isn’t always obvious.

The lesson: The teen years offer more freedom—including a driver’s license. But that freedom comes with dollar signs attached. Use their new driving privilege as a way to show the true cost of owning a car.

The action: Your teen likely judges a car based on its looks and horsepower—but there is a lot more to car ownership. Share with them the price of auto insurance, and how reckless driving can impact the policy cost. Also show them how gas and car maintenance can add up. By showing your teen the actual cost of car ownership, they’ll have a deeper understanding of living within their means.

4. Hard work pays off.

The lesson: Your teen’s first job is on the horizon—or already here. Earning their own money will help build their confidence and independence, and they’ll gain an appreciation for the value of a dollar once they recognize the hard work it takes to earn it. Now is a good time to help them understand what is automatically deducted from their pay.

The action: Teach your teen how to read a paycheck (if you don’t want to use yours, you can share in more general terms). Make sure they understand how much will be taken out for taxes, and eventually how much will be taken out for things such as retirement and health insurance.

5. Make money a comfortable discussion topic.

The lesson: Don’t shield your teen from all the financial decisions you make. Be open and honest—to a point—so they are comfortable asking questions about money and learn to better understand common money decisions.

The action: Use real-life situations as teaching moments. For instance, explain that you choose the generic shampoo because it saves you 50¢ and by the end of the year, that will be enough savings for a new phone case. Have them cut coupons with you (or find discounts in the AAA Mobile app) and plan the grocery list based on the family budget.

The earlier you help your kids develop good money habits, the fewer mistakes they’re likely to make as they grow up.

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