Teaching teens about money management can be a challenge for parents, but it’s also a critical life skill. Here are 7 essential financial skills to teach your teens before they graduate.
As parents, it’s important that we teach our teens good money management skills. Helping them learn how to manage their finances early sets them up for success and financial freedom in the future.
Financial literacy experts say that teens should learn about money before they ever get a job. That way they will be able to manage their earnings wisely from the start.
If you’re wondering exactly what money skills to teach, here are 7 key financial lessons that teens need to learn while they are still living at home.
This post is sponsored by Mr. D Math. I was compensated for my time writing this post.
7 Essential Financial Skills Your Teach Your Teen
1. How to manage a checking account
Teens should know how to keep track of their spending so they don’t overdraw their account or bounce checks, says Adrienne Dorison, a financial education consultant based in New York City.
Teenagers need to learn how to keep track of deposits and withdrawals from their checking accounts, including cash withdrawals and debit card purchases.
In addition, they need to know how to write a check properly and how to balance their checkbook each month.
2. How to save money
In today’s society, it is considered perfectly normal to spend every dime we make and live from paycheck to paycheck.
However, learning to regularly save money (even a small amount) for a car, college tuition, or unexpected expenses will pay huge dividends in the future.
Encourage–or even require–that your teens set aside a percentage of their income to save. Be sure to explain the benefit of compound interest, too.
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3. How to set up a budget
As teens begin to earn their own money, they also need to learn how to manage it. A key step in learning how to do this is developing a budget.
Many parents who want to teach their kids about money skip this step. They figure that teenagers are too young or inexperienced to handle the responsibility of tracking their spending and savings.
However, budgeting is one of the most important skills you can teach your teen NOW, so it will be second nature when they’re on their own.
“A budget is simply a plan of how you’re going to spend your money,” says Michael Yoder, an instructor at the University of Maryland’s Robert H. Smith School of Business. “It’s a way for you to take control of your finances and make sure that you are spending your money in the areas that are most important to you.”
A teenager’s budget doesn’t need to be complicated. Help them list their income, expenses, and savings goals so they can prioritize where each paycheck will go.
4. How to pay bills
After establishing a simple budget, teenagers will know exactly what bills they will need to pay.
Help them establish a method for ensuring that bills are paid on time. A simple calendar or list of dates in a notebook will work.
Be sure they know how they will pay each bill: online payment, automatic deduction, or a paper check. And remind them again that they need to record all bill payments in their checkbook register!
5. How to build a credit score
Your teen probably won’t have any credit history yet, but helping them build one will help them qualify for loans later on when they need to buy a car or a home.
In order to build an excellent credit score, teens will need to actually use some credit. To start, you might add them to a current credit account of your own.
Be sure to emphasize wise credit use. The ONLY purpose of using credit at this stage is to show creditors that they are responsible and can be counted on to make payments on time.
When helping my kids establish credit, I always advise them to use a credit card once a month to pay for a tank of gas, and then come home and immediately pay the full balance. That’s really all they need to do in order to begin building a good credit score.
6. How to buy a car
Teenagers rarely think beyond the sticker price on a car. Sure, they may have enough money saved to buy the car . . . but what about registration? Insurance? Gas?
Make sure your teen understands the range of expenses that he can expect to pay after buying a car. Registration, insurance, inspection, and estimated repair costs should be added to their budget to determine whether or not they can really afford to own a car.
Don’t miss this! Mr. D Math College and Career Readiness Course has several very helpful hands-on activities to help teens learn more about buying a car.
7. How to pay income taxes
As soon as teenagers get a job, they will be expected to report their income to the IRS and pay income taxes.
Unless your teen’s income and tax situation is unusually complicated, he or she should learn to complete their own tax forms and file their taxes themselves.
If their particular situation requires a tax preparer, help them learn to collect all the documentation and work directly with a tax preparer on their own.
Filing taxes is something that they will do for the rest of their lives, and understanding the process will be a tremendous help in the future.
Online Class for Teaching Financial Skills
Need help teaching your teen about money management? Mr. D Math’s College and Career Readiness course helps your teen develop a variety of financial skills, including:
- Writing checks
- Managing bank accounts
- Understanding wise credit use
- Financing a car
- Creating a long-term savings plan
- Paying taxes
- Understanding investing
I’ve been so pleased with the emphasis Mr. D Math places on applying the lessons. Students don’t just get head knowledge; they get real life experience, too.
For example, in one lesson, students learn about the stock market. Then they participate in a virtual stock market game, “buying” and “selling” stocks over a period of several weeks.
More About the College and Career Readiness Online Course
The College and Career Readiness course also covers other valuable life skills that teens will use in the real world, such as:
- Time management
- Goal setting
- Resume writing
- College application writing
Mr. D also hosts the A+ Parents Podcast, available in your favorite podcast app.