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You don’t want your teens to make the same mistakes you did with money?
I can relate. I was horrible with money growing up and I don’t want my children to make similar mistakes.
That’s why it falls on us parents to teach our children to be financially responsible people. I firmly believe that you lay the foundation of good sense with money early. Then it blooms for real when your children become teenagers.
Teaching teens about money and finances aren’t very different from teaching adults about the same subject. However, age does play a major part, in certain aspects. For instance, the amount of money they have.
In this article, I go through the seven things I think are most important when it comes to raising financially responsible teens.
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Teach Them Financial Literacy Early
The earlier you can start, the better, is my philosophy. Let me make a parallel, our daughter is 2 and a half years old. She’s talking quite a lot. In three languages.
My wife is from Catalonia, so our daughter has that as a second mother tongue. She speaks Swedish primarily, since that’s where we live, and we also use English a lot at home to help make that easier for her later on too.
Why did I tell that then, since it doesn’t relate to money at all, you might ask? Apart from me being so proud of my daughter I also want to make a point.
We began speaking to her in different languages when she was born. She had it with her from the start. It comes to her much easier now because of that.
I don’t mean that you should sit down with your six-month-old child and try to make a budget.
But I do mean that you should start to talk about money as soon as your child seems to show an interest. I generally think it’s a good idea to involve your children in the family’s finances as soon as it’s possible too.
It could be that you invite your children to the weekly budget meeting. Eat something, talk about money and your finances. Make it fun. It’s hard to say how old your kid should be when you do this since it’s also very connected to interest.
Involving your children like this is mainly to give an idea of finances on a slightly larger scale than the child’s own finances. This could also, as a benefit, lead to the child participating more in the family affairs as a whole.
The plan is that the conversations and actions about money and finances lead to an internalized idea in your child. If you hit up Google on the word internalization, you get Wikipedia’s explanation:
“[..] internalization describes the psychological outcome of a conscious mind reasoning about a specific subject; the subject is internalized, and the consideration of the subject is internal.”
Meaning, that your child will then have an internal consideration of the subject. Or, a feeling of what’s “good and bad” about the choices.
This is a theoretical practice of how to teach your children about finances. Of course, there are more practical tools and ideas too.
Work For The Money
There are people who say that you can never value things you get for free. Even though I don’t agree with this wholeheartedly, I do believe there’s truth in that statement.
Especially when it comes to free money.
I’m all for helping your children with getting some spending money, but I don’t believe in an allowance without any effort on their part.
That said though, I don’t want you to think that I’m preaching that you should pay your children to help around the house.
I generally say that a family should function as a small business where everyone does their part. Because of this, you get an allowance. Since you do what’s expected of you. Much like it is with a salary.
You can let your children help around the house with things early on and in return give them some money each week or month.
When they get older, encourage them to get an actual job. It’s a different kind of responsibility to work for someone outside the family.
And it feels different to get an actual paycheck instead of an allowance.
Make Them Live On What They Make
We’re suckers as parents. Because we love our children and we want what’s best for them at all times.
When our children come and ask us for more money, because they’ve accidentally spent their money on the latest hyped thing, like a golden fidget spinner, we want to help them. It’s instinct.
I’m asking you to resist that instinct. You’ll feel evil and harsh. I promise.
But you want to raise an independent kid that doesn’t need to borrow money at the end of every month. Oh, and who never returns the borrowed money.
Teach your children that they have to learn to live off the money they make. If that’s an allowance or a salary doesn’t matter. This is to teach the basic mindset of economizing.
It’s my personal belief that if you give free money to your children all the time, they might think that it’s ok to also get “free” money from other places. Like credit cards.
The best way to learn to economize with your money is by budgeting.
Budget To Make It Last
It feels like that a budget is the go-to multitool for personal finances. It works for everything.
That’s not true though, but a budget is a great tool that can, in fact, help in different problematic situations with finances. It’s also easy to use and set up.
In its simplest form, you only need a pen and a paper. And a ruler if you want to be fancy.
But nowadays, when do teens use pen and paper? Use a spreadsheet instead and make them feel like we’re in the right century at least.
Most teens don’t know how to set up a budget and what to consider when they do. So it falls on you, as a parent to help them. Teach them the basics of what a budget is and how they should think about budgeting.
Help them set up the categories and the basics of tracking the money. But let them do the continuous work with their budget.
If you don’t know how to set up a budget, there are places on the internet that teach you how to budget for free. Like my ecourse in budgeting, for instance.
I always argue that for a budget to be successful, all money that comes in needs to be accounted for in the budget. There shouldn’t be any money that isn’t assigned to a place in the budget.
Your teen shouldn’t have any “free-floating” money in their finances. Free floating will lead to free spending.
Avoid that.
Save What You Have Left
As your teen gets their budget set up, listing all the expenses and money they want to spend on fun stuff, they will see how much they have left each month.
As you’ve done the groundwork when your child was growing up, as teens, they want to save the money. Right?
The free-floating money from the previous headline comes into play here. If your teen had more money coming in than he or she had going out when you set up the budget, put it in savings.
It doesn’t matter how much money it is. Even if it’s a dollar, it’s better to save it than to spend it on things that you don’t need.
Save With a Purpose
We all know how hard it can be to save only for the sake of saving. I know that I didn’t understand the purpose of that when I was growing up.
I once set a goal to save for a speedway motorcycle, though, since I wanted to try that as a teen. I got some money saved up then I understood that speedway wasn’t for me. So, I robbed my piggy bank and use the money for useless stuff.
What I mean with saving with a purpose is to have goals. If you’re familiar with goal setting, you might understand what the previous paragraph was about too.
When your teen sets a goal for their savings, or finances as a whole, help them with making them realistic.
In fact, there’s a popular goal-setting strategy called SMART-goals. You might have heard of it, but I will explain it here.
SMART is an acronym of:
Specific
Measurable
Attainable
Realistic
Timely
Most of those are self-explanatory but let’s look at it a bit more anyway. Let’s say your teen wants to save money for a car. That’s not very specific. Decide what model, color, and year.
To make that measurable, you need to find a price for a car like that. The cost is the measure of how much to save.
Is it a brand new Tesla your teen wants to get? Then that might not be very attainable (at least not within a reasonable time) unless he or she makes loads of money. It might not, because of the same reason, be realistic either.
A used Honda Civic from 2005 on the other hand, for instance, might be more doable.
Timely means to set a time when to achieve the goal. Calculate how much your teen can save each month, divide the price by that and you’ll have a ballpark time frame.
Setting goals in finances are always a good practice since it will help you save with intention. This will also be something that helps your teen later in life.
Download our Our Goal Setting Template Here.
Bonus Round: Invest
Since you’re raising such money-smart children, they will also learn the power of investing and compound interest. Because of that, they will want to start investing early on.
I will try to explain compound interest quickly here, but it will be an explanation that’s lacking.
The idea of compound interest is to get interest on your interest. You get this kind of interest since you reinvest the interest and earn interest on that as well. Does that make sense? It means you make your money work for you, instead of you working for it.
The first years of investment can be quite slow, but once it picks up pace, it’s like the snowball effect. This means that if your teen starts investing early, they can end up rather rich later on.
If you want a more technical and deep explanation of compound interest, I suggest Investopedias article on it.
There are also cool compound interest calculators you can use for free on the internet to see what effects it can have.
You might not be comfortable with giving your teen advice on how to invest. There are professionals that can help you with this though and it might be a good idea to talk to a professional financial advisor.
How do you teach Your children?
There are many ways to teach children and teens about money and finances to make them money smart later in life. How do you do it, what is your philosophy?
Anders is a Swede with a love for personal finances, but not only the money part. He believes in a balance in all areas of life and that’s why his writing brushes on our society’s and our mind’s effect on our financial situation.