Teaching your kids about financial independence when they’re teens can help build a strong foundation for the financial decisions they’ll make in the years to come. From getting their first job to budgeting their finances and eventually paying for college – learning financial responsibility can be a trial by fire for many young people. But you can give them a leg up by teaching them to be financially independent early on.
Teach financial literacy early
Data from the P-Fin Index (an annual personal finance survey) revealed that financial literacy in the US is around 50%. To start your child on a journey to financial literacy, talk to them about basic financial concepts such as saving, budgeting, investing, and credit. But that may be easier said than done. The struggle for many parents is finding the right way to convey the information so kids will listen.
Start by using real-life examples and practical applications from your own life to make these lessons relevant. For example, you can use your current household budget as an example of the expenses that go into running your home. Or, if your teen already earns money from a part-time job or odd jobs, explain the importance of a bank account and help them open their first one. A savings account is a good start, as it can help them understand the importance of saving money and how interest income works.
Introduce basic investment concepts
As your teen becomes more comfortable with saving and budgeting, introduce age-appropriate investment concepts. Younger teens may benefit from an overview that includes how investments work. Older teens may be ready for a primer on the different types of investments and the potential risks and rewards. The P-Fin Index data revealed that while many Americans grasp concepts like borrowing and saving, they’re less confident with risk. Giving kids an early education can help them with financial planning when they establish their own careers. Plus, when they’re ready to find a financial advisor, they’ll be better prepared to vet candidates or ask questions.
Teach them to avoid scams and fraud
As new financial products like NFTs and different cryptocurrencies enter the market, it’s easy for people who don’t know much about these products to fall victim to scammers. Here are a few ways you can teach your teens to avoid financial scams:
- Explain the importance of using secure payment methods like credit cards for financial transactions (especially online).
- Teach teens to use only secure websites (with “https” and a padlock icon) when shopping online.
- Encourage kids to be skeptical of unsolicited messages or offers that seem too good to be true.
- Remind them to keep information like their full name, address, phone number, Social Security number, and banking information confidential.
- Explain the importance of strong, unique passwords for different accounts and the benefits of using two-factor authentication.
Teens are usually curious about money and eager to learn. As parents, you can create an environment where they feel comfortable asking questions or disclosing any concerns without fear of judgment. It may be tempting to emphasize saving over everything else, especially for teens who struggle with impulse control. However, for young adults to have a good relationship with money and a strong grasp of financial concepts, it’s important to give them a balanced view of saving, spending, and investing.
Sources:
https://www.weforum.org/agenda/2024/04/financial-literacy-money-education/
