Teen Money Management: Learn By Doing

The best way to learn is by doing, yet most teens don’t actually get a chance to practice money management. Why don’t we make sure they get the chance to practice money skills frequently at home when the risks are low? Don’t let their first car purchase or taking out a loan for college be the first money decision they make. Introduce a few of these activities to teach your teen money management.

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Discuss Your Finances with Your Teen

For some of you, talking about your finances may feel vary hard. You might even feel like it’s wrong to talk about your finances with your child. Now I’m not suggesting you cause any distress in your child about money. Try to keep the conversation worry-free. What every child needs is to see real-world expenses and how to live within your means.

Show your teen your budget.

If you don’t have a budget, check out Step-by-Step Budget for Beginners. Start by showing your teen what you budget for taxes. That way, when they get their first paycheck they won’t be surprised by the amount of taxes deducted.

Show your teen expenses for needs

Needs would include housing, food, utilities, health insurance, car maintenance and fuel, and clothing. This will give your teen an accurate idea of what the cost of living is for your household. Chat about the difference between needs and wants. Maybe, like me, expensive name brand clothes and shoes don’t fit in with your budget. This is an opportunity to speak with your teen about why. For me and my family, we’ve chosen to prioritize my working part time to be home while my son is young. We also want to be able to do fun extra things, which means keeping clothing costs under control.

Show your teen budgeting and saving for wants

Take a look at some of the fun things you would like to do together as a family. This could include travel, saving for a new TV, eating out, or buying a ping pong table for the family to play together. If you can get your teen excited about what you’re saving for, they may be more on board with cost cutting in other areas of the budget.

Practice Sticking to a Budget

Depending on the age of your teen, they may not be old enough to have their own job and budget yet. But they can still have a chance to practice sticking to a budget.

One way to do this is to allow your teen to manage a portion of your budget each month. For example, your teen could take charge of the family grocery shopping budget. Provide whatever guidance you feel is necessary given your teens age and abilities. Perhaps you can make a shopping list of things you need (like flour and milk), and let your teen use their own discretion for choosing snacks. You can show your teen cost-saving strategies like Ibotta, couponing, or looking for weekly deals.

Another option is to give your teen the portion of the family budget that would be allocated to cover their own expenses. For example, if you have a monthly clothing budget of $100 for a family of 3, allow your teen to manage their $35 per month. If they choose to put that money towards 1 or 2 expensive pieces, they may. However, they will then have to do without all the other things they might have purchased instead. Of course, if your child chooses so poorly that they have no winter coat or their shoes have large holes in them, you may have to intervene. Use your judgement to determine if they need to live with the consequences of their decisions vs providing help.

Financial workbooks

If you are looking for a resource or workbook to buy, I would recommend using some of the resources developed by Crown Financial Ministries. I feel their workbooks are down to earth and easy to understand. They also have a well-balanced perspective on money. There are other financial plans and books that recommend avoiding the use of all credit, or not saving for retirement at all until ALL debt is paid off. These kind of recommendations may be good for some, but they should not be recommended for everyone. Crown Financial Ministries has none of that. I have found their books to contain wise advice that’s time tested and good for anyone and everyone.

For Younger Teens

Discovering God’s Way of Handling Money Teen Study Workbook is a great study for teens in Junior High or High School. This book is easy to use, and covers topics relevant specifically to teenagers, such as friends and money. Of course, it also covers all the other topics we want our teens to understand like work, saving, debt, and giving.

For Older, College-Bound Teens

For teens heading to college, I recommend Biblical Financial Study Collegiate Edition Student Manual and Practical Application Workbook. This workbook is specifically targeted for students in college and those preparing to head off to college. I used this one myself right before heading off to college. Like their other workbook for teens, it covers work, saving, debt and giving. In addition, this workbook goes into more detail regarding some topics. These include: resumes and job interviews, career and financial goals, investing, insurance, and managing checking accounts and budgets. By the time your teen is done with this book, they should have a clear financial plan for the year. They can also repeat some pages each year when they are ready to make adjustments to the money plan.

For Older Teens Ready to Enter the Workforce

Is your teen is starting a full-time job right after graduating high school? They may be ready for the MoneyLife Personal Finance Study. This study will show your teen how to manage their money in the real world and set them up with a money plan. This can be done with the workbook, but it is also offered online, whichever best suits your teen. This Finance Study also comes with videos to teach financial principles, and tools for creating and using a budget.

Invest in stock market

If you and your teen are able, invest a small amount in stocks and allow your teen to manage it. This should be money that can remain invested for at least 10 years. If you can’t spare money for a 10 year period, that’s OK. Let’s face it, teens will have a lot of big expenses coming up including cars, housing, and education. An alternative is using a stock simulator like the Investopedia Stock Market Simulator.

Lessons that you want your teen to learn about investing

It is important to get an early start investing. Due to compounding of gains, the earlier you invest the more your money will grow before retirement. That makes a big difference.

Don’t invest in volatile commodities like crypto, or try to short sell. If you can’t afford to lose the money, then you can’t afford to buy crypto or to short sell. Stick with investments in the stock exchange for a longer term. While you may experience losses in your stocks, historically the stock market has made an average gain of 10% per year. If your money remains invested, you can wait out the downturn and expect overall gains.

You do not need a financial advisor to invest. While a financial advisor may help you, you can also successfully select your own exchange traded funds (ETFs) and mutual funds.

Watch out for fees when buying and selling. Especially when starting out with small investments, fees can eat up your earnings. Look for no-transaction-fee (NTFs) stocks, mutual funds, and ETFs.

Earn Money and Create a Budget or Savings Goal

If your teen is old enough to earn money in some way, then they should have a money plan and money goals. Aside from getting a part time job, there are other ways your teen could earn money. They could make and sell crafts, grow or pick produce to sell, shovel snow and rake leaves, or even raise chickens and sell eggs. Find something together that interests your teen.

Set a savings goal for something they want, and create a budget to help them get there. For example, if your teen is making cutting boards to sell, budget for expenses of wood, sand paper, mineral oil, etc. Also budget for tithing or giving. Finally, you can budget for saving towards their goal. Show your teen how to calculate how many cutting boards they will need to make to reach their goal.

Use Mortgage or Loan Calculators

By playing around with a mortgage or loan calculator, your teen will begin to see how much interest is paid over length of the loan. This is important to understand when making decisions regarding big purchases. Make it more relevant by having your teen look online for a car they would like to purchase one day. Draw your teen’s attention to the amount the car would cost if purchased outright, vs how much would be spent with interest over the life of the loan.

While talking about the car purchase, examine other expenses related to the purchase of a car. These would include taxes and fees (national average is $349), insurance, gas, maintenance, and registration.