Raising money-savvy children takes more than teaching them about counting money, spending less, and saving more. It requires fostering financial skills that make them financially literate from a young age and ensure good money habits for the long haul.
Unfortunately, the state of financial literacy isn’t great in the US. Only a quarter of Americans think they are very financially literate, and one in ten adults say they are not at all informed.
The bigger concern about lack of financial literacy is the cost it entails, with surveys showing that 15% of adults bore a loss of at least $10,000 due to wrong decisions in 2022.
As a parent, you should do your bit to empower your children with this skill during their formative years. Instilling financial literacy in teenagers establishes the foundation for a secure future. However, convincing a teen to avoid impulsive spending requires a strategic approach.
This article will share some effective parenting advice to help parents achieve this goal.
Integrate Money Management into Daily Life
Early exposure to financial concepts can give children a head start with their money training. You shouldn’t wait for them to reach their early teens. Start early and let them learn the ropes as they grow up. Once they develop an interest in these concepts, they will easily adopt the right money habits from a young age.
Begin with the Basics
Introduce basic terms and principles during childhood, starting with counting money. Start with age-appropriate language and gradually increase complexity as they mature.
The idea is to ensure they learn money management early and gain more knowledge over the years. Arizona Central Credit Union highlights the significance of banking, loans, insurance, college scholarships, and investment for young people.
Give Hands-On Experience
Explore everyday opportunities to discuss money and make small decisions. For example, involve your child in budgeting for grocery shopping or discuss price comparisons while making purchases. A hands-on approach enables teenagers to apply theoretical knowledge to real-life situations. It also makes financial literacy more relatable.
Set Financial Goals Together
Everyone should have relevant financial goals, including youngsters. For a teenager, it may be saving up a specific amount of money every month. Your child may want to save up for a school trip or a major purchase. Educate them about realistic goals and milestones because they are easy to stick with and achieve.
Nurture Budgeting and Saving Skills
According to a recent survey, nearly 74% of Americans have a monthly budget. However, 84% of them say they sometimes exceed their budget. The numbers are an eye-opener for parents because they highlight the significance of teaching budgeting and saving skills to teenagers.
Educate Them About Creating Actionable Budgets
Budgeting is a skill that requires expertise and practice. Besides crunching numbers, your child should learn about creating actionable budgets. Here are the aspects to consider for creating actionable budgets:
Encourage Them to Leverage Technology
You can introduce them to money-saving and budgeting apps to ease the process. The best part of using these apps is that kids connect well with technology, increasing the likelihood of adherence to their money goals.
These apps simplify budget planning, help track expenses, and offer actionable money-saving help for teenagers. Experts recommend checking different apps and their features to find the best one for your teenager. Fortunately, you can find several options to get them started with minimal effort.
Raise Awareness About Concepts of Savings
Besides leveraging technology, educate your child about money-saving concepts such as delayed gratification. It will help them avoid blunders like impulsive spending and make more informed financial choices.
Likewise, you can highlight the significance of an emergency fund so that your teenager starts creating one at a young age. Teach them to set aside a fund that covers at least a few months of their regular expenses.
Introduce Banking and Financial Tools
Another effective step to raising a financially literate teenager is to familiarize them with banking and financial tools. Young people often struggle to handle their bank accounts because they do not know the practical aspects of banking.
Open a Bank Account
You can start by opening a joint bank account so that they can experience making deposits, withdrawals, and monitoring banking transactions. While children cannot open an account independently before 18, the ideal age to give them banking exposure with a joint one is 9 years.
Since online banking is a norm in the US, consider teaching them how to use online banking tools securely. You can start with a guided approach and let them take over once you feel that your child is confident enough. Also, trust them enough to let them handle their accounts independently once they reach the legitimate age.
Provide Practical Exposure
Theoretical education about banking and financial tools is not enough for teenagers. As a parent, you must take a more practical approach. Practical exposure makes them confident about handling financial tools independently. Also, introduce the concept of interest to your youngster. Discuss different account types, such as checking and saving accounts. Remember to explain the advantages and limitations of each.
Enroll Them in a Financial Education Workshop
Consider enrolling your child in a financial education workshop so that they can learn banking and financial concepts from experts. Alternatively, you can utilize online resources together. Look for workshops or resources that touch on key topics, such as understanding interest rates and the significance of credit scores.
Also, discuss real-world scenarios and financial decisions. These workshops offer valuable insights and equip your teenager with the knowledge required for making informed financial decisions in adulthood.
Create Interest in Investing Concepts
Everyone loves seeing their money grow, and teenagers are no exception. While investing may seem complex to a youngster, introducing basic investment concepts can create interest in them and make them a savvy investor down the road.
Explain Different Options
Parents can explain the different investment options available, highlight their risk and return, and emphasize the power of compounding at this age. Utilize interactive online platforms to create an engaging experience for your child as they learn the basics of investing.
Online resources such as Investopedia and virtual stock market games enable them to practice investing without real financial risk. Read news stories and financial blogs to illustrate how economic events may impact investments.
Consider a Joint Investment
You can even consider a joint investment in a low-risk vehicle to give your child a hands-on experience. Besides creating interest in investing, this exposure cultivates a long-term perspective on wealth-building.
The best part is that your child has your back as they navigate the realms of investing, so they hardly have a chance of going wrong. You can be a mentor they can rely on to see their finances grow.
Link Investments to Personal Goals
Another effective step for investment training is illustrating how investing can help your teenager achieve long-term financial goals. For example, they can use their investments to fund education, buy a home, or build wealth in the long run.
Understanding the correlation between investment decisions and personal aspirations enables teens to view investing as a tool for realizing their ambitions.
Encourage an Entrepreneurial Mindset
The Investopedia Financial Literacy Survey highlights that Gen Z adults in the US are far more financially savvy than any previous generation at the same age. That’s an opportunity for parents looking to raise money-literate kids because they have a lot to learn from people who have been there and done it.
Inspire with Real-life Examples
The sheer number of young entrepreneurs in the country is inspiring for teens. Parents can use these success stories to encourage an entrepreneurial mindset in young children.
Read stories so that you can narrate them and research articles to share with your children. While you showcase these examples, avoid unhealthy comparisons and allow your child to carve their own path.
Introduce Them to the Side Hustle Culture
Entrepreneurial thinking fosters financial independence and motivates youngsters to identify potential income-generating activities. The good thing is that the side hustle culture is trending in the US, opening more opportunities for teens to start a career while still in college. They can explore different opportunities such as:
- Freelance writing or blogging
- Social media marketing
- Graphic design
- Online reselling
- Online tutoring
- Virtual assistance
- Fitness training
- Web development
Once they discover the right opportunities according to their skills and passions, discuss financial planning and risk management to get them on the right track. Foster a business mindset where they think of revenues and profits to build a venture of their own.
Cultivate a Growth Mindset
Entrepreneurship is about a relentless pursuit of growth, regardless of external factors. Instill a growth mindset by teaching your child that dedication and effort can enhance abilities and intelligence. Highlight the value of learning from setbacks and failures to promote resilience in the face of challenges.
With this mindset, your child will be open to embracing opportunities for learning and improvement. These are essential qualities for aspiring entrepreneurs who have to navigate the uncertainties of the business world.
Financial literacy should be a key aspect of raising a future-ready generation. However, it requires consistent effort and practical application. Parents should realize the significance of an early start and help their teenagers build a robust foundation with knowledge and hands-on experience. The goal is to empower them to navigate the complexities of the financial world and make informed decisions that pay back in the long run.