As a parent, you’re probably used to guiding your teen through school projects, study routines, and extracurriculars, but teaching money skills might feel like uncharted territory. Financial literacy is rarely covered in school, yet these skills can have a major impact as teens transition into adulthood, whether they’re budgeting for school expenses, saving for college, or planning their first big purchase.
In this post, we’re switching things up from our usual topics to explore smart money habits that can help your teen reach their goals. By helping your teen understand and manage their finances now, you can give them the confidence to make informed decisions for school and beyond.
Understanding Financial Goals
Setting financial goals can boost your teen’s confidence in managing money. Having clear and realistic objectives provides guidance for both saving and spending, whether they are focusing on next week or several years down the road.
Why Set Financial Goals?
- Goals make money management feel purposeful, helping teens save intentionally rather than impulsively spending.
- Specific, achievable goals are more motivating than vague ones. For example, “Save $1,000 for college textbooks by graduation” is more practical than “save money for college.”
Short-Term vs. Long-Term Goals
It’s helpful to distinguish between short-term and long-term goals:
- Short-term goals (weeks or months): These could include saving for a school trip, supplies for a hobby, or personal expenses like school events.
- Long-term goals (years): These might be saving for college, a first car, or future living expenses. These goals require more patience and discipline but teach the value of planning.
Example Exercise
Sit down together and list out both short-term and long-term financial goals. Start by identifying short-term goals related to current needs or hobbies, then move on to long-term goals for bigger milestones. For each goal, discuss a realistic amount to save and set an estimated timeline for reaching it. This exercise can help your teen visualize their priorities, making their financial future feel more organized and achievable.
Budgeting Basics
Budgeting is one of the most effective ways to manage money, yet so many people (especially teens) don’t understand or utilize it. Helping your teen understand how to make their money work for them and how to budget will give them a clearer picture of where their money goes and how to make it last.
Why Budgeting Matters
Budgeting isn’t just about restricting spending—it’s about making thoughtful decisions. When teens create a budget, they can prioritize their spending, avoid impulse buys, and ensure they have enough money for things that really matter.
Identifying School-Related Expenses
School can come with several costs, and it’s helpful to list them out so teens know what to expect. Here are some examples:
- Books and Supplies: Textbooks, notebooks, pens, calculators, etc.
- Extracurricular Fees: Clubs, sports, or school events that require money to participate.
- Meals and Snacks: Whether it’s lunch at school or snacks for after-school activities.
- Field Trips or School Events: These can add up, especially if your teen participates in multiple activities.
Needs vs. Wants
Help your teen distinguish between essential purchases and non-essential ones. For example:
- Need: A basic calculator for math class.
- Want: An upgraded, more expensive calculator with extra features they may not use.
This simple distinction helps teens make smarter decisions about what to spend money on and what to save for later.
Practical Tips for Budgeting
Once your teen has some income (from an allowance or part-time job), it’s time to break it down:
- List monthly expenses (school supplies, meals, etc.) and allocate money for each category.
- Set limits for non-essentials like entertainment or hobbies.
- Save for future goals, like college or a new laptop.
Example Exercise
A great way to start is by having your teen create a simple monthly budget. Have them list all their expected school-related expenses and figure out how much money they need to cover those costs. This will give them a clear idea of how much they can spend in other areas and help them develop a realistic approach to managing their finances.
Tracking Spending and Building Awareness
Tracking expenses helps teens identify patterns in their spending habits and see where their money is going. This not only gives them a sense of control over their finances but also makes budgeting easier and more effective. By recognizing where they’re spending their money, they can make smarter decisions, such as cutting back or saving for something important. It’s a valuable way to learn the true value of money and prioritize their goals. Encourage your teen to start by tracking just one week of spending to identify areas where they might be overspending.
Simple Tools for Teens
There are several easy-to-use tools for tracking spending:
- Apps: Apps like Mint or PocketGuard can track spending automatically, syncing with a bank account or credit card.
- Notebooks: A simple notebook where teens jot down each expense can help them stay organized.
- Spreadsheets: Logging daily spending using a basic spreadsheet can be a great way to organize expenses into categories.
Example Exercise
Challenge your teen to track their school-related expenses for an entire month. Have them review their spending at the end of the month and figure out where they could cut back. Maybe they realize they’re spending too much on snacks or could borrow textbooks instead of buying them. This exercise will help them become more mindful of their money and take charge of their spending.
The Basics of Student Loans, Scholarships, and Financial Aid
The financial side of college can be scary, with tuition, housing, books, and other fees adding up quickly. Since these costs can vary depending on the school and program, it’s important for teens to explore financial aid options early. Doing so helps make college more affordable and ensures they have access to the resources they need, without putting unnecessary strain on family finances or leading to overwhelming debt.
Student Loans 101
Student loans are a common way to pay for college, but it’s important to understand what they are and how they work.
- Interest Rates: Student loans often come with interest, meaning your teen will pay back more than they borrowed over time.
- Repayment Expectations: Federal student loans usually have a grace period after graduation before payments begin, but it’s crucial to know when to start paying and how much will be owed. Planning ahead helps avoid surprises.
Scholarships and Grants
Unlike loans, scholarships and grants don’t need to be paid back. Scholarships are typically awarded based on merit, need, or other criteria, while grants are often offered by the government or schools to help students with financial need. These options can significantly reduce the amount of money that needs to be borrowed or saved.
Encourage your teen to explore scholarships related to their intended college major or extracurricular activities. Many scholarships are available for specific fields, such as engineering, arts, or healthcare, and some are even awarded for unique traits, like being left-handed or twin. Applying early will increase your teen’s chances of success.
Example Exercise
Ask your teen to research a scholarship or grant that matches their intended college major and have them make a list of eligibility requirements, deadlines, and application steps. This will help them familiarize themselves with the process and start thinking seriously about funding their education.
Exploring the Real Cost of Career Choices
When it comes to choosing a career, it’s important for teens to understand how education impacts earning potential. The decisions they make now about their education can have a long-term effect on their financial future. By exploring different career paths, they can make informed choices about the type of education or training they need.
- Future Salary and Career Planning: Education and career paths often go hand in hand, with certain degrees or certifications leading to higher-paying jobs. Understanding the potential salary for various careers helps teens consider what they want to achieve and how much they might need to save for education and training.
- Researching Career Options: Encourage your teen to look into job options that match their interests. Understanding the earning potential in different fields helps them plan for future expenses, such as student loans or living costs, and provides insight into what they might need to support their financial goals.
- Salary Research: Teens can use websites like Glassdoor, Salary.com, or the U.S. Bureau of Labor Statistics to find salary information for various careers. They can also reach out to professionals in fields of interest to learn more about the career path and what it takes to succeed.
- Costs of Different College Programs: Not all careers require a 4-year degree. Trades like plumbing, electrical work, or HVAC often require certifications or training programs that are more affordable and take less time.
Example Exercise
Have your teen research three potential careers they’re interested in. Ask them to list the education requirements, expected starting salary, and any additional costs associated with each career, such as training programs or certifications. This will give them a clearer picture of the financial commitment for each option.
Conclusion
Financial literacy is essential for helping teens build independence and confidence as they transition into adulthood. Building strong financial habits takes time, so it’s important for parents to be patient and supportive throughout the process. Encourage your teen to take small steps and celebrate their progress as they learn.
Consider setting regular “money talks” as a family activity to discuss goals, spending, and saving. This open communication can help your teen develop a healthy relationship with money and reinforce the importance of good financial habits. Over time, these discussions will empower them to take control of their finances, making them more confident and prepared for the future.
