Helping teens build solid financial skills

Quick answer: Teens are used to instant gratification and a few can have a hard time understanding “no.” Include them in financial discussions about the family budget, challenges the family may be facing and any longer-term goals or priorities. Teens can understand financial knowledge and apply this information to make good financial decisions. Consider providing opportunities for your teen to research and analyze financial options. Talking to your teenager about personal and family goals can help him/her become an informed consumer.

Other realities of teen finance

At this stage your teen may be itching to get a job to earn extra cash. You’ll want to emphasize the wisdom in balancing work during the school year with school performance. While employment can provide valuable experiences, studies have shown that employment may interfere with academic performance for teens who work 20 hours or more per week.1

If your teen is earning a paycheck, he or she may find it easier to access his or her savings account with an ATM card, a move you may or may not decide to support.

If your older teen (or college-bound student) wants a credit card, you might take the opportunity to have a serious talk or two about spending. In general, teens with credit cards are less price-conscious, more likely to spend more, and more likely to overestimate their savings than those who pay cash.

Keep in mind, teens can’t get a credit card in their own name before the age of 18. Young people between 18 and 21 need a cosigner or verifiable income to get one. If you decide your teen should have access to a credit card, he or she would need to be added as an authorized user or joint account holder on a parent’s account.

Start by explaining the importance of establishing good credit and credit score. Institutions and creditors determine an individual’s creditworthiness based on their credit history, or how well obligations are repaid. A credit score is a snapshot of a person’s credit risk at a particular point in his or her credit history. Credit scores help lenders determine how likely you are to repay your debt on time. For teens with no credit history, no score can be computed.

You can help your teenager understand that one of the keys to getting the right apartment or qualifying for the loan he or she will want someday at a good rate may be a strong credit score.

Be sure to impress upon your teen that responsible use of credit cards is a common way to help establish a good credit history and that paying off the balance each month in a timely manner is an important safeguard against becoming a credit risk. Problem behaviors to watch for in your teenager include:

  • Paying bills late
  • Not paying off credit cards in full
  • Incurring late payments and fees
  • Not communicating when problems arise
  • Bouncing checks

Remind your teen how stressful debt can be, and reinforce the point that the credit history he or she establishes now will increase in importance as he or she gets older and needs to apply for loans, such as for a car or college. Make it clear that once someone has created a bad credit history, it can take a long time to recover.

Let them practice

With children who are mature enough to take on a project, like planning a family vacation, to help instill the value of money, diligence, and hard work. When thinking of the next family vacation, ask your children to plan it out with a specific budget. International destinations provide an added element of learning about foreign exchange. Creating a vacation schedule, pricing out airline tickets, hotel, and rental cars, and then explaining the rationale provides an exercise in understanding how much things really cost, as well as project management, organization, and leadership skills.

¹Child Trends. 2016. www.childtrends.org/indicators/youth-employment/.