I remember the good ole’ days when my view of the world was four feet from the ground and a dollar earned after cleaning my room made me feel like a millionaire! As I grew older, that dollar didn’t stretch quite as far, and my teenage eyes yearned for more. It’s this moment in life, the teenage years, which offers parents the perfect opportunity to introduce key financial concepts that will serve their adolescents well for a lifetime to come. However, for many, discussing money management with your teen may feel like a daunting task, especially if, as a parent, you don’t feel your own financial ducks are in a row. Never fear! Below are five key financial concepts every parent should discuss with their teenager to help equip them with the necessary tools and knowledge to navigate the intricate world of finance.
As parents, we want our teens to have a bright and successful future. That’s why it’s crucial to have conversations, or as we like to call them in my household “Dream Sessions” regarding their current and future goals/dreams. This is a great way to get your teen talking and an opportunity for you, as a parent, to begin discussing how their dreams can be achieved with smart financial planning. By doing so, you can begin to guide your teen towards making sound financial decisions that will help position them down the path towards financial success. These conversations also set the stage to help teach your teen about the benefits of budgeting, credit, and investing, and how these tools can empower them to take control of their financial future.
The journey to financial literacy starts with the fundamentals of budgeting. Like any skill, mastering the art of budgeting can make the difference between a life of financial stability and one of stress. Demonstrate to your teen how to create a budget, track expenses, and compare prices before making a purchase decision. Help them identify and categorize their current sources of income (e.g., allowance, part-time job, and/or gifts) and expenses (e.g., entertainment, snacks, and savings). In addition to teaching your teen how to budget, communicate the importance of why we budget – to help guide our spending so that we can reach our financial goals.
The subject of credit can be intimidating, but with the right approach, it doesn’t have to be. Begin with an introduction to credit scores and their significance in helping your teen with future purchases (e.g., car, motorcycle, and/or house) and the ability to obtain a loan and/or credit card. Illustrate the positive impact of paying bills punctually and the potential pitfalls of late payments. Importantly, emphasize to your teen the tangible effects of excessive debt. Dive deep into the concept of interest, focusing on the compounding effects, both in terms of saving money and accumulating debt. It’s critical that your teen understands that credit is much more than numbers on paper. Good credit management leads to a good credit score, which in turn increases your borrowing power and puts money in your pocket to save and invest.
As they say, “Money makes money.” But how does one make their money work for them? Investing is the answer. While the world of investments can seem overwhelming, teaching your teen the basics will help provide a foundation for their future financial success. Start with a basic overview of the various investment vehicles – stocks, bonds, mutual funds, etc. Simplify the jargon and relate it to real-world examples that they can understand. Reiterate the positive effect of compounding interest and its ability to help meet their financial goals. Conversely, it’s critical that your teen understands that investing is not without its risks. Help them grasp the concept of “risk versus reward” and emphasize the potential benefit of long-term investing.
One of the best pieces of advice that you can give your teen is to start saving early. The sooner they save their money, the more time they have to make it work for them. Encourage them to save all or a portion of the money they receive from birthdays, holidays, and/or part-time jobs. The simple act of saving, whether it be for college or a “rainy day fund,” can help lay the framework for a lifetime of financial stability and peace of mind.
In conclusion, laying a solid foundation of financial knowledge for your teenager is akin to planting a tree. With the right care, guidance, and tools, you’re giving it the best possible opportunity to grow, flourish, and provide shade for many years to come. Understandably, money conversation with your teen may be difficult. If your attempts to get their attention are met with boredom and eye rolls, speak with your Wealth Advisor to see if he/she can offer advice and talking points to help spark the conversation.
Data Source: This blog was written with the assistance of Artificial Intelligence, specifically Chat GPT and Jasper. Photo courtesy of Adobe Stock.
LS Investment Advisors, LLC (dba LSIA) is a registered investment adviser. The information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.