Talking about money with younger family members can be challenging. But if you want your benefactors to succeed with what you leave them, it’s critical to communicate with them. For many Americans, this means talking to their teens about money and their plans for leaving a financial legacy.
How to Teach Teens About Money
A 2019 survey by TD Ameritrade found that Americans would rather discuss hot-button topics like politics, religion, and healthcare than discuss money. Don’t let that be the case for you and your teen. Consider revisiting your feelings toward the subject so you can teach your teens about spending money, saving money, and establishing a financial legacy.
Why is it important to teach your son or daughter about money? Simply put, steering your kids in the right monetary direction can set them up for a lifetime of financial fitness. Keep in mind that your kids likely won’t receive any personal finance education in the classroom.
As CNBC reports, “Personal finance education across the U.S. varies by state, city, and even school. Only 21 states require high-school students to take a course on personal finance, and few require it to be a standalone class, as opposed to being incorporated into another course.”
Here are five tips to help ensure your teens learn financial lessons that’ll give them a greater sense of security.
1. Give Them an Allowance
When your children are old enough to do chores, give them an allowance—maybe $20 a week—for completing the tasks assigned to them. This teaches them the value of hard work. It also provides money that they can save for a special purchase, like a pair of earbuds, or that they can put toward a long-term goal like buying a car or paying for college.
While an allowance won’t directly make your child a millionaire, the habits formed around managing the money can help make your child financially successful in the future. An allowance is a vehicle for learning and practicing sound money management.
2. Create a Budget
Aside from helping teens set up a budget for how they’ll spend their allowance, give your children a front-row seat to how you put together your household budget. And if your teen holds down a part-time job, you can assist them with budgeting how they save and spend their paychecks, too.
“Sharing the reality of your family budget can help your teen grasp key financial concepts such as compound interest, delayed gratification for those things that matter most, and thoughtful savings,” Leo Tucker, managing partner at Northwestern Mutual, told Parents magazine.
3. Educate Them About Debt
A budget can be a jumping-off point for teaching your teens about debt. For instance, let’s say your son exceeds his monthly budget and can’t afford the pair of sneakers he’s been eyeing. This is an opportunity to teach him that going into debt means he may not be able to afford to make a purchase or may need to trim expenses to make room for that purchase in his budget.
Also, as soon as your teens start earning money, they’ll become prime targets for credit card companies and the ensuing credit card debt.
“Being in debt is not the way you want your teen to begin their adult life,” says Liz Frazier, a Forbes contributor and certified financial planner. “Explain to them that using a credit card is a loan, and if they are using credit cards, it means they are in debt. They not only have to pay back this debt, but they have to pay the interest fees on top of that—which can be high, especially for young adults.”
4. Encourage Savings
Stashing money in a savings account underscores the importance of putting aside money for short-term or long-term goals. Encourage your son or daughter to put a share of their allowance or paycheck in a savings account to decrease the temptation to spend money as soon as it hits their bank account.
5. Be a Role Model
Children mimic a lot of their parents’ behavior. So if you smartly handle your money, you’re setting a good example for your children. But if you mismanage your money, your children might adopt your bad habits without even realizing it.
Positive Parenting Solutions offers everyday strategies for being a good financial role model. One of those strategies is to do price comparisons when shopping and include children in the decision-making process. Also, use cash instead of a credit card to show your children that “money has its limits. Credit cards, on the other hand, have the tendency to make money appear endless,” Positive Parenting Solutions warns.
How to Teach Children About Leaving a Financial Legacy
When you’re teaching your children about how to manage money, be sure to inform them about how you intend to leave a financial legacy. As they get older and advance in their financial understanding, let them know about your estate plan, including your will, and how you want them to handle any money that you leave them.
According to Merrill Lynch, 87% of Americans say it’s parents’ responsibility to initiate conversations about leaving a financial legacy, yet few parents do. Even if your children aren’t eager to discuss your financial legacy, it’s vital to broach the subject so they’ll be prepared for what’s ahead.
Conversations with your children about leaving a financial legacy should happen well before it’s time for you or your spouse to retire. “In my experience both as a daughter and a planner, the best thing you can do is have the conversations early, before it’s too late,” Laurie Allen, founder of LA Wealth Management, told MarketWatch.
These ongoing conversations can help ensure that your wishes are carried out when it comes to how your children handle the financial legacy that you’re leaving for them.
Jump-start a conversation about your financial legacy and economic basics with a little help from the U.S. Money Reserve Knowledge Center. You’ll find videos, free reports, photo galleries, and other resources related to wealth.