What You Should Teach Your Teenager about Money

As teenagers, your kids will have a lot more freedom, and that means more responsibility. Financial responsibility, in particular, will be very important as your children approach adulthood and have to take the reins on managing their money. It’s critical that teenagers learn the basics of personal finance to put them in a better position to be financially successful adults.

Research from the FINRA Investor Education Foundation found that 18-22 year-olds have a much lower chance of credit delinquency and achieve higher credit scores if they received financial education in high school. Unfortunately, financial education is not a requirement in several states, so many teenagers go without the vital money lessons they need.

If your child won’t receive any financial education in high school, you’ll have to take matters into your own hands. Here are some crucial money lessons for teenagers:

1. Explain how to shop for value, not for brands. Teenagers can be brand conscious, so it’s important to show them that the biggest name brands aren’t always the smartest purchases.

2. Teach them about compound interest. Compound interest is a concept that appears almost everywhere in personal finance. Understanding the basic math behind how compound interest works will help your teenager understand the importance of saving for retirement as soon as possible and why it’s critical they pay off debt quickly. Here is a brief video that explains compound interest that you can use to teach your child about the concept.

3. Differentiate between wants and needs. Teenagers may want to spend all their money on fun times, but as they start driving and planning for college, they will have to contend with more fixed expenses. This is where it’s especially important for them to understand the difference between what’s a necessary expense and what they could do without.

4. Explain the basics of credit. The minute your child turns 18, he or she will be bombarded with credit card offers. Before it gets to that point, take the time to explain how a credit card actually works—it’s not just free money! You can get them a credit card that’s connected to yours so you can monitor their usage as they learn about credit.

With some basic math skills and a little time devoted to these vital financial concepts, your teenager will be well on his or her way to being a financially literate adult.