Teaching teens about money

Parents of teenagers, take a breath. You’ve earned it. Guiding your soon-to-be adults is no easy task as they explore interests, get their first jobs, wrestle with emotional ups and downs, and begin to plan for the future.

Hard as it might be to imagine adding to your parenting tasks, your teens are ripe for some important guidance from you about money. They may be getting their first jobs and making—and spending—money. They’re probably thinking about life after high school and being on their own.

If this idea puts you a bit on edge, you’re not alone. “A lot of parents are nervous about talking about money with their kids,” says Lucas Beatty, a Thrivent financial associate in Gastonia, North Carolina. The topic might have been taboo when you were growing up, or you don’t know the best way to bring it up with your kids. “But I encourage parents to have those talks before their kids leave home,” he says. “It will set them up for success when they become adults.”

While teens may seem a lot more interested in what they can buy with their money, have a conversation about what their values and priorities are and how money fits into that. These might be tough for them to identify, so make it relatable. Ask questions like: Do you want to support causes important to you? Do you need a car to get to work? Do you want to be able to help out when a friend is in need? Do you want to save money so you can go to college?

The idea is to emphasize that money is a tool to help them achieve what’s important to them and to help develop a healthy mindset around money. As they start to earn more money and have discretion over what they do with it, this could become an important practice—periodically checking in with their priorities.

The share-save-spend method is easy to understand and execute, gives a sense of control, and can become a lifelong practice. Here’s how it works: Any time your teens earn or are given money, encourage them to divide it into those three categories. It helps to assign percentages to them so that they learn the rewards of being disciplined and consistent.

“If teens learn to spend no more than 70% of after-tax earnings, they’ll be establishing a good money habit,” says Dan Johnson, a Thrivent financial consultant in Jacksonville, Florida. He suggests 10% for share money, 20% for savings and 70% for spend, or expenses. But your teens, with your guidance, should choose whatever percentages are right for them.

Once your teens start working, help them set it up so paychecks are directly deposited and split up according to their share, save and spend percentages. “I encourage teens to open a checking and a savings account,” says Johnson, “so the money automatically is divided up and they don’t have to touch it.”

Identifying goals helps your teens achieve what they want. They can be short-term, like saving for soccer gear, and long-term, like saving for college. But knowing the goals is just the first step. Next is making a plan for actually achieving them. To help with that, teens can use the SMART method:

• S stands for specific: Be very clear and specific about what exactly you want to achieve.
• M stands for measurable: For example, I want to save $50 to contribute to an important cause.
• A stands for achievable: Be realistic about the goal you’re setting so you can achieve it.
• R stands for relevant: You stand a better chance of achieving a goal that’s very important to you, or relevant to you.
• T stands for time-bound: You need to set a deadline for your goal.

Setting SMART goals helps your teens focus on what exactly they want and gives them a structure and timetable for reaching them.

This is also a good time to talk about needs vs. wants: needing a new pair of soccer cleats because they’ve outgrown the old ones vs. wanting the latest gaming adventure online. Your teens can plan for both, but the key is to understand that needs come first.

Understanding this concept also helps them resist impulsive purchases. Teens get a lot of pressure from various sources to spend money, from advertisers and influencers on social media to friends and peers. Taking a pause before spending money is one way to resist.

“Teach teens to stop, think and act,” says Gretchen Franti, a Thrivent financial associate in Rixeyville, Virginia. “If you’re tempted to make a purchase, stop and think about how hard you’ve worked to save your money and ask yourself if this is how you really want to spend it.”

Another way to resist the impulse: When you see something you really want to buy, wait 24 hours before making the purchase.

James and Alicia Kaelin, clients of Johnson from St. Johns, Florida, helped their two children, Tarynn and Luke, open youth savings and checking accounts at a local bank when they became teenagers. The accounts came with a debit card.

“They tend to have very little cash on hand,” says Alicia, “so they use the debit card like cash. They know how to transfer money from one account to another. And we taught them how to monitor the balance in their accounts.”

If your teens are just starting out with a debit card, help them get one and give a quick lesson:

• When you use a debit card, the money comes directly out of your personal savings or checking account.
• The account needs to be monitored to avoid going below required minimum balances and having to pay penalties.
• Download the bank’s app so you can easily keep an eye on the accounts.

Teens know what credit cards are, even if they don’t have one. But they often don’t understand that they’re different than debit cards. Explain how credit cards work, making these points:

• When you charge a purchase on a credit card, you’re putting off paying for the item, so it’s essentially taking out a loan.
• You shouldn’t charge anything unless you know you can pay it off in full in a few weeks when the statement arrives.
• If you don’t pay the entire balance, you’ll face paying very high interest rates on the unpaid balance, which in essence increases the cost of the item you purchased.

The Kaelins helped Tarynn, 19, get a credit card when she went to college and instructed her about how to use it. They’ll do the same for Luke, 17, when he’s getting ready to leave home.

To ease your teens into using one, get a low-limit card and encourage them to make just small purchases at first that they know they can pay off.

“If teens could learn to treat a credit card like a debit card, that’s a great financial lesson,” says Beatty.

While living at home, your teens’ finances may be so basic that a budget isn’t really needed. But it can be useful and certainly will be important when your kids live on their own.

Explain how a budget complements the idea of dividing your money into share, save and spend buckets. Show them what one looks like and how a budget works. They can use a budget today to plan for future expenses (gas, meals with friends) and income (babysitting money, a part-time job) as well as look backward to see where they spent money.

They might want to use a budget app, or they could go old-school and create their own spreadsheet. Show them how you manage your budget and be willing to answer questions, even the ones that might make you feel a little awkward, like “How much money do you make?” You’ll be modeling a healthy, open attitude about money when you do so.

Luke Kaelin tracks his expenses on a simple document he prints out. “I think it’s helping,” he says. “It’s easier to keep track of things with it than trying to keep it all in my head.”

Learning to save money is a valuable lesson. But there’s another related topic worth discussing: the impact of compound interest. “I use a future value calculator when I’m talking to teens,” says Beatty. “I show what happens when you put $100 per month aside for the next 30 or 40 years. When they see that accumulated amount, they’re amazed.”

When Luke Kaelin recently learned about compound interest, it was a lightbulb moment for him. He had started a job at a pizza restaurant and was putting money aside, but he was excited to learn that there’s also a way his money could make more money.

“I talked to my parents about it,” he says, “and we scheduled a meeting with Dan Johnson.” Johnson presented different options for investing his money for the long-term with retirement in mind and recommended Luke start a Roth IRA. “Now I have a specific amount that goes into the IRA each month,” says Luke, “plus I put in any tip money I earn.”

While the topic of saving for retirement may be important to discuss, talking about compound interest is a way to get teens more interested.

And anything you can do to pique their interest about any of these topics means there is a greater chance they’ll learn some valuable habits around money.

Think about these talks with your teens, and maybe even your preteens, as conversations, not lectures. And they don’t need to happen in any particular sequence. Instead, look for opportunities. If they don’t seem to appear, then create them. Either way, keep the conversations short and focused. If you make them TED Talks, they may lose interest. Share your wisdom while being open minded and a good listener. You’re planting seeds with these discussions and should expect to cover topics more than once.

Did your teen just get $50 from a grandparent? Started a first job? Wanting to go to a language camp next summer? These are all teachable moments. That gift from grandma is a chance to talk about sharing, saving and spending. A first job gives you a chance to explain how taxes affect a paycheck and how a check could be automatically deposited into various accounts. Wanting to go to camp is a chance to show how to set realistic goals and work toward them.

If natural opportunities don’t present themselves, set aside times devoted to talking about money. Show your teens how you pay bills or how to transfer money from one account to another. Talk about some goals you’ve set for yourself and how you plan to achieve them. Encourage your children to talk to you about their wishes and dreams, whether it’s to buy a sweater tomorrow or a home in the future. Help them see how they can create a path to achieving their dreams.

Contact your Thrivent financial advisor for more guidance on teaching teens about money. Contact Thrivent Credit Union for information on checking accounts, savings accounts, and debit and credit cards.