How to Explain Finances to Your Teenager
How to Explain Finances to Your Teenager
Teenagers have an unfair reputation for being flighty, self-involved, dramatic, or impulsive. In reality, teenagers are curious, opinionated, engaged, and passionate. At this age, kids are solidifying their beliefs about the world and themselves. This makes it an excellent time to introduce strong financial principles to your adolescent. As their brains mature and their prefrontal cortex becomes more active, they’re better able to grasp abstract concepts like interest, budgeting, and saving. Don’t miss this unique opportunity to help shape your child’s financial future. Here are a few tips on explaining finances to your teenager.
Show, Don’t Tell
With teenagers, the best way that seems to get a point across is through a direct experience, rather than simply talking about it. If you put money into an educational savings account, such as a 529 plan, when your child was younger, now may be the time to show them how that initial investment has the potential to grow. Even a modest amount of money is likely to grow over 14 to 16 years. This concrete example of money that will be used for their education can help them grasp the power of compounding interest.
Touch Base Multiple Times
Although you may be excited to dive into the world of finances with your teenager, trying to cover too much at once can overwhelm and frustrate them. Instead, take several opportunities to share bite-sized nuggets of financial wisdom with them regularly. Doing your taxes? Introduce them to a W2. Reviewing your family budget? Let them see your anticipated versus actual costs. Or, if there’s a big-ticket item that has caught their eye, capitalize on their natural interest to share strategies for earning and saving money. If their motivation is high enough, they may want to learn even more about how they can help to grow their savings.
Encourage Family Charitable Giving
Contrary to popular belief, young adolescents are often deeply interested in what they can do to make the world a better place and how they help those around them. To encourage that impulse, make charitable giving a part of your child’s financial education. Once you’ve set your family’s charitable giving budget, let each family member choose a specific cause they want to support each month. Charitable giving also helps make money more concrete. While $50 is an abstract number, one pair of shoes and two hot meals are the real-world impacts of giving back. Help your children understand how financial gifts can transform others’ lives—and their own.
Put Them In Charge of One Part of Your Household Budget
To give them a sense of real-world budgeting, put your teenager in charge of handling one aspect of your family budget. Groceries and food purchases are an excellent place to start. Give them a grocery list and a budget and see if they can stay under budget with their purchases. You may end up with some unusual brands in your pantry, but it’s definitely worth it for the hands-on experience.
Start With a Debit Card
Helping your child understand how a debit card works is best done under your roof before they head off to college or the workforce. Using the money earned from chores or a part-time job, help your child open savings and checking accounts connected to a debit card. Since they won’t be able to spend more than they earn, they’ll learn valuable lessons about budgeting. You can also require that they set up an automatic deduction from their paycheck into savings.
Let Southwestern Investment Group Help You Teach Financial Principles
Helping your children understand finances is an important part of raising kids who are ready for the workforce. For additional tips on how to help a teenager build a financial foundation, reach out to an advisor at Southwestern Investment Group. We’re here to help answer your questions so that you can feel empowered to pass on your financial wisdom to the next generation.
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