Teaching kids the value of money and how to manage their money as they get older is an important but often tricky subject.
The concept of pocket money is not new to parents or kids, whether your children are getting $1 or $100, there seems to be an endless number of things to spend it on.
The problem is, as the money your teen gets increases (like if they work a summer job), so does the temptation to spend it.
Money 101
Managing money doesn’t necessarily come easily to teens, so how can you get them started?
The first step is to teach them the difference between “wants” and “needs”.
Your teen may want a new set of sneakers that just came out, but do they need them if they just got new sneakers last month?
While shopping, point out items that are necessary for your family, and contrast those with items that are nice-to-have but not essential.
If your teen wants something they can’t afford with the money they get, instead of simply supplementing their money to allow them to get what they want, try setting their purchase up as a goal they can attain.
How can you help them do this?
You can teach them about banking and finance.
You don’t need to go straight into the complex stuff yet, let’s look at some terms about banking for teens to start with.
Money Terms for Teens
Here are some money terms you can teach your teen to help them to start understanding the monetary system.
- Saving – Savings accounts are simply a repository to put money somewhere it can’t immediately be spent. The idea here is that teens learn delayed gratification because their money isn’t available to spend right away, but it’s still theirs!
- Interest – Interest is money that your teen earns for their patience. The longer they hold off spending their money and leave it in the bank, the more it grows. This is a great way to teach teens the rewards of saving.
- Budget – Budgets are helpful because they teach your teen to plan ahead. This is a vital skill for their adult life and will significantly impact their future ability to do things like buying a car, travel, and putting a down-payment on a house.
- Credit – Credit helps your teen understand the concept of t trust. Explaining that they earn a reputation with banks depending on how they handle money, and that this reputation can impact their future goals, can help them make smart decisions when it comes to choosing whether to save, or spend.
Lessons Teens Can Learn from Managing Money
1. Responsibility
Managing finances and money are a critical part of being an adult and can have a big impact on a person’s success in society.
Learning responsibility through managing money creates a system that rewards your teen for being responsible without trying to directly control them, which can often lead to conflict.
Instead, they will build a sense of self-worth by seeing the positive results of their own actions, and this will empower, and encourage them, to make better choices.
2. Independence
As your teen learns that behaving modestly with their money has better long-term outcomes, they will start to reflect on the choices they make, and will begin to develop their own internal value system.
An internal value system is a vital component of learning independence.
When teens realize that good behavior = good results, they will earn more trust from their parents and parents will learn to trust their decisions because they’ve seen that they can make smart ones!
3. Planning
Part of being an adult is knowing how to plan ahead.
Learning to plan with money is a great way for teens to be rewarded for delaying their gratification.
By setting goals for how they’d like to spend their money, and then realizing them, teens learn how to plan for bigger things, like careers and families, and the rewards that the future can bring.
Start early
The concept of a piggy bank is more than 500 years old, so putting money away for later is not a new concept.
Thankfully, things have advanced a little in that time and there are better systems of banking for teens to start with, that offer big advantages, like compound interest!
The longer money is kept in savings, the more it grows.
Teach your teens the 7/10 rule when it comes to saving.
This rule describes how long money would take to double in value at a set interest rate.
If your savings earns 7% interest, it will take 10 years for that money to double!
So, if you put aside $5000 in a savings account earning 7% interest, in 10 years you’ll have $10,000.
But it doesn’t end there, because in another 10 years that money will double again into $20,000.
This is called compound interest, and it is critical to building wealth.
Learning to prioritize saving over spending is a valuable life lesson that takes time to learn. Introducing your teen to banking is one of the best ways to teach them that concept.
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