When high school hits, your kids enter a whole new world. They’re getting more independent, capable of handling more, and maybe even old enough to get a job. But they still need to learn and experience a lot before they’re ready to fly the nest – especially regarding financial literacy.
According to a study done by annuity.org, a staggering 75% of American teens lack confidence in their personal finance knowledge. Plus, according to Next Gen Personal Finance, only 22.7% of high school students in the U.S. have guaranteed access to personal finance courses.
March is Credit Education Month. It’s the perfect excuse to teach teens that good money habits aren’t just about dollars and cents – they tie into everything you’re trying to teach them as a parent. It’s about helping them make smart choices that let them enjoy today, plan for tomorrow, and live by the values your family believes in.
Below, we’ll look at how parents and educators can work together to make this happen.
Why financial literacy matters for teens
Financial literacy is essential for teens because it protects their future. Without knowing how to manage money, they risk being taken advantage of by predatory lenders and making costly mistakes with debt. This can lead to a lifetime of financial struggles. For example, bad spending habits can hurt your credit score, making it harder to get ahead.
Not understanding finances also means missing out on opportunities to build savings, security, and wealth. When teens learn personal finance, they’re typically able to use this knowledge immediately. They can learn how to make informed spending decisions, like budgeting for wants versus needs, avoiding overspending and debt, and learning the value of money and saving.
It’s even more important down the road. It helps them build a good credit score, plan for retirement, and teach them good money habits they can share with their families someday.
Beyond individual benefits, financial literacy also strengthens society as a whole. It means less financial stress, better well-being, less reliance on assistance programs, and more people who can contribute to the economy.
Key financial concepts teens need to understand
Money can be complicated, and there is a lot to learn about it. We’ll break down some of the most important financial concepts for teens to learn, from budgeting to investing and everything in between. We’ll also provide some practical tips on effectively teaching these skills.
Budgeting
A budget is a financial roadmap. Teaching teens how to create one helps them learn the difference between needs (like food and shelter) and wants (like video games). Tracking expenses lets them see where their money actually goes, makes them more aware of how much they actually have, and truly enables them to understand the cost of things. It also helps them understand the importance of saving a portion of their income, no matter how small.
To help your teen learn to budget, explain why it matters and connect it to their goals (e.g., saving for a car, concert tickets, college). Start with a basic approach.
You can use a notebook, a simple spreadsheet, or a budgeting app designed for beginners and teach them how to track spending and adjust if they overspend or if their income changes.
Involve them in real-world examples. When you’re paying bills or grocery shopping, talk about how you make budgeting decisions. If they have an allowance or earn money, let them manage it (with your guidance). Set aside some time each week or month to review their budget together.
It’s important to be patient and supportive. Create a safe space for them to ask questions and discuss their financial concerns. Learning to budget takes time, and mistakes will happen, but you can use these as learning opportunities. Let them know you’re proud of their efforts and that you’re there to support them.
Banking and saving
Start with the basics: banks are safe places to keep money, offer ways to access those funds, and can even help it grow through interest. A great way to get them involved is by opening a joint account, where they can manage their own money with your guidance.
Take them to a local branch to introduce them to the environment and bank staff. Explain the different types of accounts, like checking and savings, and how each works. Show them how to use an ATM or debit card responsibly, emphasizing the importance of tracking transactions, avoiding overspending, and understanding potential bank fees like overdraft charges. Discuss the convenience of online and mobile banking, but also stress the critical need for online security. This hands-on approach makes banking seem less complicated and empowers teens to take control of their finances.
Beyond basic banking, introduce them to different savings options.
Explain how savings accounts offer a secure place to keep their money, while Certificates of Deposit (CDs) typically offer higher interest rates for a set period. If your teen has income, whether from an allowance or a job, opening a savings account is a fantastic way to experience firsthand how money grows and learn the basics of saving.
Sharing your own savings strategies can provide valuable real-world examples. So, explain how you set and achieve your savings goals, covering different types of savings:
- Short-term savings: For things like a vacation, a new phone, or concert tickets.
- Medium-term savings: These are for larger purchases or goals, such as home repairs, a car down payment, or a significant piece of furniture.
- Long-term savings: These are for major future needs like a college fund, retirement, or a down payment on a house.
- Emergency savings: Emphasize the importance of having an emergency fund to cover unexpected expenses, and clearly define what constitutes a true financial emergency (e.g., car repairs, medical bills, job loss, not just wanting a new video game).
By sharing your own approach and explaining the rationale behind different savings goals, you can help your teen be better prepared for the future.
Investing
Investing introduces teens to the idea that they can make their money work for them and strategically grow it. Explain to them the concept of assets like stocks (representing ownership in a company), bonds (loans to companies or governments), and mutual funds (diversified collections of investments).
While those younger than 18 cannot set up their own account to invest in the stock market, an adult can do it on their behalf.
Get your teen involved by having them pick a stock, researching the company together (looking at things like their products, financials, and competition), and explaining the potential risks and rewards of investing – emphasizing that stock prices can go up and down.
You could even set up a small “portfolio” with their chosen stock (or a small amount in a mutual fund or ETF) and track its performance over time, using it as a learning opportunity to discuss market fluctuations, diversification, and the importance of long-term investing. This hands-on experience can spark their interest in finance and give them a basic understanding of the stock market.
Credit and debt
Understanding credit and debt is another important concept for teens to learn early on, even though they can’t get their own credit cards until they’re 18. While it may seem risky to get your teen a credit card, learning about how credit works, how to use credit responsibly, how to build a good credit score early, and the potential pitfalls of debt will set them up for success later.
While adding them as an authorized user to your card is an option, remember that you, the primary cardholder, are ultimately responsible for all charges. This presents a valuable teaching opportunity, but it’s essential to establish clear ground rules and have open conversations about how credit cards work.
Cover key concepts like interest rates (and how high rates can significantly increase borrowing costs), credit limits, and the importance of paying bills on time to avoid late fees and negative impacts on credit scores. Emphasize the benefits of paying the full balance each month to avoid interest charges. Also, explain the serious consequences of overspending and debt: damaged credit scores, high-interest charges, difficulty securing future loans or housing, and the overall stress and financial burden debt creates.
To help them learn responsible credit use, you can add them as authorized users to an account in your name. Remember that you, the primary cardholder, are ultimately responsible for all charges. Allowing teens access to a credit card under your watch offers a valuable teaching opportunity, but it’s essential to establish clear ground rules.
Set spending limits. If they go over the limit, there should be consequences. If they keep overspending, it might mean they’re not ready for a credit card. If they have a job or get an allowance, have them help pay the bill. This teaches them how much things really cost. If they’re late on a payment, they should be responsible for a late fee to learn the consequences. If they don’t pay off the balance each month, show them how much they’re paying in interest.
Credit cards are a good way to teach teens about credit scores.
A credit score is a three-digit number that summarizes your creditworthiness – essentially, how reliably you repay borrowed money. It plays a significant role in many financial decisions, including getting a loan, renting an apartment, and sometimes getting a job. A good credit score can unlock lower interest rates and better loan terms, saving you money in the long run. Teens should understand how credit scores are calculated (factors like payment history, amounts owed, length of credit history, new credit, and credit mix) and how their financial actions can impact their score.
Income and taxes
Earning money is a huge step toward financial independence, but it’s also important for teens to understand that income and taxes go hand in hand. Learning about both now will set them up for financial success later.
There are lots of ways for teens to earn money beyond an allowance. Small jobs like babysitting, being a camp counselor, shoveling snow, or tutoring are classic starting points. Part-time jobs at stores or restaurants offer a more structured experience. Freelancing (writing, designing, etc.) and short-term “gig” jobs (like food delivery) provide flexibility. Even starting a small business – selling crafts, offering a service, or creating digital products – can be a fantastic learning experience. Encourage teens to think creatively about problems they can solve or products they can create, and then help them take action on their ideas.
Understanding taxes is just as important as earning. Explain how income tax works and what deductions are (things that can lower the amount of tax owed). Teens should learn about W-4 forms (which tell employers how much tax to withhold from paychecks) and the 1040 form (used to file taxes each year). If you use tax software, walk them through the process as you file. Even if you use a professional, take them to the appointment so they can ask questions and learn directly from the tax preparer. This also offers a great opportunity to discuss how to use a tax refund wisely to reach financial goals.
Financial scams and online safety
Learning how to protect yourself is another important part of financial literacy. Scammers often target teens because they may be more trusting and less experienced online. Talk to your teen about common scams like:
- Phishing: Fake emails or texts trying to trick them into giving up passwords or other personal information.
- Social Media Scams: Fake contests, requests for money from “friends” or “family” (whose accounts might be hacked), and other tricks on social media.
- Fake Job Offers: Promises of easy money that are actually scams.
- Prize Scams: “You’ve won!” messages that are really just trying to obtain personal information or money.
- Tech Support Scams: Fake calls or pop-ups about computer problems that are really trying to steal information or install harmful software.
It’s also essential to teach teens about protecting their personal information. They should be careful about what they share online, including their address, phone number, Social Security number, and passwords. They need to use strong, different passwords for each account, understand how privacy settings work, and keep their devices updated with security software. When doing anything financial online – like shopping or banking – they should always use secure websites (look for “https” and a lock icon) and never use public Wi-Fi for these activities.
How parents and educators can promote financial literacy
Financial literacy isn’t something that can be learned overnight. It’s a skill that takes time, real-world experience, and ongoing learning and adaptation. Support and guidance from parents and educators can help develop the confidence and knowledge they need to succeed. Here are some practical strategies:
Parental involvement:
- Open Communication: Talk about money openly and honestly. Don’t shy away from discussing your own financial decisions (the good and the not-so-good) in an age-appropriate way. The more comfortable teens are talking about money, the more likely they are to ask questions and learn.
- Family Budgeting: Involve teens in family budgeting discussions. This doesn’t mean sharing every detail, but explaining how you prioritize expenses, save for goals, and make financial choices provides a real-world context for budgeting concepts.
- Setting an Example: Children learn by observing. Demonstrate responsible financial habits in your own life. Show them how you budget, save, and make smart purchasing decisions. Actions speak louder than words.
- Money Management Opportunities: Give teens opportunities to manage their own money. Whether it’s an allowance, income from a part-time job, or managing a small budget for specific expenses, this hands-on experience is invaluable.
- Age-Appropriate Resources: To make learning about finance engaging and accessible, utilize age-appropriate resources like books, websites, and even games. Many resources are available specifically designed for teens.
Educator’s role:
- Curriculum Integration: Financial literacy should be woven into the school curriculum, not just as a standalone subject but integrated into relevant subjects like math, social studies, and even language arts. This reinforces financial concepts and shows their real-world application.
- Interactive Teaching: Utilize interactive teaching methods like simulations, games, and guest speakers to make learning about finance engaging and memorable. Hands-on activities can bring financial concepts to life.
- Supportive Environment: Create a supportive and non-judgmental learning environment where students feel comfortable asking questions about money, even if they seem basic. No question is a “dumb” question when it comes to finance.
- Partnerships: Partner with parents and community organizations to create a comprehensive approach to financial literacy. Collaboration between schools, families, and community groups can amplify the message and provide a wider range of resources.
Financial resources and tools for teens
Building financial literacy is a team effort, and luckily, many helpful resources are available for teens, parents, and educators. Here are a few places to start:
Youth Financial Literacy Resource Center: This site provides free money and credit guides, budgeting and saving worksheets, videos, and more.
Wise Up For Teens: Free financial education courses.
Financial Education Center: A library of resources to help you build financial literacy.
What you teach them today lasts a lifetime
In short, financial literacy is crucial for teens. It gives them the tools they need to make smart money decisions now and in the future. Learning about money early has huge benefits, from saving and investing to avoiding debt and reaching their goals. With the right resources and support, today’s teens can become a generation of financially savvy adults, building a stronger future for themselves and everyone else.
