6 Ways to Teach Your Teen Financial Independence

When your teen is nearing the end of high school, they’ll suddenly need to take control of lots of aspects of their lives, from meal planning to healthcare. That includes finances.

As adults, we sometimes assume that once a teen is a certain age, they’ll naturally know how to manage money. For some, that may be true. But most need guidance, and practice. Without it, it’s easy to get into big trouble with credit cards and debt.

Connecticut Children’s pediatric psychologist Lauren Ayr-Volta, PhD, explains how parents can help.

1. Set your teen up with their own bank account.

For your teen to practice earning, spending and saving, they need real-world experience. Many banks will let teens have a basic checking and savings account if there’s a parent involved. It could be funded from your teen’s part-time job, or from an allowance you pay them in exchange for household chores.

And because actual cash can be a good teaching tool, introduce them to the ATM.

Speaking of which…

2. Help teens make the connection between money and spending.

These days, where we charge things online and they get delivered to our door, spending can feel disconnected from the actual money we’re using. The cost of something starts to feel imaginary.

One suggestion? Use cash, especially when your teen is just starting to practice their financial skills. Whenever possible, have them use cash so they have a tangible understanding of what money is, and how quickly it can run out. Think: food, movies, birthday gifts, gas.

3. Make a savings plan.

If your teen has a part time job, or they earn an allowance from you, what are they doing with that money?

Set them up with a saving habit, like automatically saving a percentage or dollar amount of income. For your teen, maybe it’s “Every time I get paid, I’m going to transfer $50 to my savings account.”

4. Help your teen make a budget.

How much do they earn in a week or month? How much goes toward expenses, or “needs,” like gas, cell phone or other bills that they’re responsible for? How much have they committed to savings?

Finally: After needs and savings, how much money will they have left for “wants”?

Let your teen decide how to spend or budget out any money that’s left, so they get a feel for the consequences. If they decide to use all of it on an expensive video game, that means they won’t also be able to buy pizza.

5. Look into low-balance credit cards.

Once young people are on their own, it’s easy to get into financial trouble if they don’t understand how credit cards work. You can help your teen by introducing them to credit cards while they’re still under your roof.

The minimum age to qualify for a credit card is 18 years old, but older teens often still need a parent’s help qualifying. If you have a younger teen, you can usually add them as an authorized user on your credit card account. (Consider opening a low-balance credit card just for this purpose.) Have them practice using the card to buy something small, then immediately paying off the balance.

6. Use mistakes as learning opportunities.

Teaching your child financial independence is like teaching them any other life skill: At first, you do it for them. Then you start teaching them how to do it on their own. Once they have enough practice, they take over.

Every learning process involves making mistakes. When it comes to finances, wouldn’t you rather your child make small mistakes now, before they’re out on their own? Use these experiences to talk about what to do differently next time.

It’s never too early to start!

Even preschoolers can start to learn about money and savings! Maybe you set your young child up with one spot to save for the ice cream truck, another to save up for toys they want, and one that goes into a piggy bank for their future.

By starting the conversation about money early, you’ll help your child form good habits. And they’ll feel comfortable coming to you to talk about financial questions down the road.