Teaching Teens About Money

Takeaways: Teach Your Teen Good Money Habits

• Teaching your teen about money can help build financial capability and a positive attitude toward planning, saving, frugality and self-control.
• Learning about money can include skills, like using a checking account, and understanding how to build credit.
• Start by discussing values and goals to help your teen create a plan that works for them.

Money Values and Goals

Consider introducing the idea of personal finance to teens by talking about what's important to them and help them identify their financial values, as suggested by the Federal Deposit Insurance Corporation, the agency that insures deposits at banks. (Note: The National Credit Union Administration is the agency that insures deposits at credit unions.)

What are Your Teen's Financial Values?

Defining financial values can be challenging, even for adults. However, you can help your teen identify their values by thinking through how they might prioritize their spending. Try suggesting categories of spending for them to consider, such as:

• Education: School supplies, college tuition and a new laptop.
• Charitable giving: Money for charitable organizations.
• Family and friends: Holiday gifts for those you care about.
• Entertainment: Gaming expenses and concert tickets.
• Financial independence: Paying for more decisions independently, including gas and insurance for a car they drive.
• Shopping: Clothes, shoes, jewelry, bags, hats, makeup and bath products.
• Travel: Going to new places, whether locally or internationally.
• Home: Redoing a bedroom's look, outfitting a college dorm.
• Dining: The value of fancy coffee with friends may be significant, too — and that's OK.

Some aspects may feel less important to teens, such as retirement, investing in stocks or starting a business. But some may already be interested in these ideas.

Try this: Help your child put these values in order based on what they find most meaningful.

Listing Specific Financial Goals With Teens

This is the specific thing you're saving for — maybe textbooks for college, a new phone, a charitable donation, a car, that new pair of shoes, or all of the above.

When you talk to your child about their goals, ask:

• How much money do you think you'll need to save?
• How long do you think it might take to save for this goal?
• Which goals are most important to you?

Introduce the concept of needs and wants, and how young adults must balance these or make tradeoffs when pursuing multiple goals. Needs are things that you must have to survive, such as clothes, shelter or food. Wants are things that you would like to have but can live without, such as a new phone.

Try this: You may find your teen doesn't have an accurate idea of costs, so explore pricing using trusted websites with your high schooler. Demonstrate how to find online calculators or how to do the money math to estimate total costs.

Help your child see which goals can realistically be accomplished short-term (in the next year) versus long-term (in the next five to 10 years).

Achieving Goals with a Bank Account

After your teen has outlined their goals and values, it's time to discuss how savings and checking accounts can help people budget for everyday expenses while saving for a big-ticket item.

Your Teen's Checking Account

Checking accounts can be used for day-to-day expenses such as going out with friends. At age 13, teens typically can qualify for a checking account with a debit card for everyday transactions, although they'll need an adult joint account holder until they turn 18. (BECU allows kids of any age to have an account as long as a parent or guardian is on the account with them.)

However, it's essential to explain that checking accounts have rules that must be followed. If the rules aren't followed, an account might be closed, and your teen could owe fees. Discuss the use of a debit card, how to check a balance and why it's essential not to overdraft an account.

Talk about spending habits and the difference between wants and needs. Ask your child if there's something they think they'll buy when they receive their next allowance or paycheck. Have them practice taking 24 hours to think about a purchase that they want versus need.

If your teen wants an item, they can put it on "hold," mentally. It's unlikely the item will sell out. If they look at their budget and decide they can afford it, the item will be there the next day.

Try this: Ensure your teen knows how to access and review a checking account's balances, spending and statements on a desktop computer and mobile app. Kids can access online banking and the mobile app at age 13, as allowed under the Children's Online Privacy Protection Rule.

Your Teen's Savings Account

Teens should learn that the best place to save money is in interest-bearing savings accounts, and how compound interest can help their money add up faster. Also, discuss why you save money and the importance of a rainy-day account for need-based emergencies.

Your high schooler might divide up their savings goals into different accounts or using a tool that helps them categorize their savings, such as BECU Envelopes.

Setting up automatic transfers from checking to a savings account can help kids stay on track, provided you discuss how these transfers work and their potential impact on their checking balance. If your teen has a job, help them set up direct deposit so part of their paycheck goes directly to savings.

Try this: A good rule to share with your teen is to try to save at least 10% of a paycheck or allowance. However, calculate how long it will take to achieve one of your child's goals if they stick to 10%. They'll likely want to save far more.

Money Management: Everyday Budgeting and More

Your teen might earn money from a job and use cash or a debit card to pay for items you've agreed are their responsibility.

"Start by having your teen list all of their expenses, from school activities to entertainment," says BECU financial educator Stacey Black. "Then, sit down together to decide which expenses they will be responsible for covering. Be realistic about what is manageable based on their income or allowance."

It's good practice and an essential lesson for teens to make a budget as they spend money. Typical categories might include:

• Saving for goals
• Lunch or dinner with friends
• Activities
• Gas money
• Clothing, accessories and other supplies
• Unplanned extras

Try this: Review last month's spending with your teen to see how expenses lined up with these categories — and encourage them to add new categories that work for them. Then, make a budget for next month and challenge your teen to see if they can follow it.

"The goal is not perfection," Black says. "It's building strong financial habits for the future. If they go over budget, treat it as a learning opportunity. Talk about what went wrong, explore alternative choices, and brainstorm ways to avoid the same mistake next time."

Credit Cards and Your Teen

Teens can't typically get loans or credit cards until age 18. But it's never too early to introduce the idea of credit that your teen might qualify for or be interested in their next stage of life. Some examples might include:

Try this: Talk about the steps or even missteps you made when building your credit. Did you forget to pay a bill? What happened? How did you get your first credit card? Did you get a credit-building loan or credit card at a credit union? What lessons did you learn along the way?

You can also compare offers you receive in the mail from credit card companies. Show your teen the work required to compare interest rates, fees and the fine print.

Resources for The Road Ahead

Your high schooler may be able to take a personal finance course at school. 

"Remember, you don't need to have all the answers," Black said. "By researching solutions and exploring resources together, you are not just solving the problem; you are modeling the skills they'll need to navigate their finances for years to come."

FAQ: How To Teach Your Teen About Money

Q: What's a Good Money Management Approach for Teens?

One approach discussed in BECU's Next Big Talk guide (PDF) is the "save, share, spend" philosophy. With this approach, you can set aside money into three buckets:

• Saving for the future.
• Sharing with charity.
• Spending on needs and wants.

Q: How Much Should Teens Save Every Month?

The CFPB recommends teens save at least 10% of income every month. This can help prepare them for a lifetime of savings, including saving up to three months of living expenses, in the future. Making savings contributions automatic can help teens save without remembering to move money.

Q: What Should I Look For in a Teen Checking Account?

Ideally, a teen checking account won't have a minimum balance requirement and should not charge any service fees. Teens may not be able to meet minimum balance requirements consistently, and service fees can drain their accounts. Look for an account that offers debit card access to a network of free ATMs, and easy tech tools to help your teen manage money, such as an app.

Q: What Should Teens Learn About Money?

According to the CFPB (PDF), young people need to learn about the following:

• Financial habits and norms: Develop healthy money habits and attitudes toward spending and saving and design a spending strategy.
• Financial knowledge and decision-making: Make budgeting and savings decisions aligned with values and goals, while developing research and math skills to do so.
• Executive function: Practice impulse control, working memory, planning and prioritizing using checking and savings accounts.

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