How to Teach Your Teen to Be Smart With Their Money


Your teen's first part-time job is a right of passage, one of their first steps into independence and adulthood. It's also a great time to teach them valuable financial lessons that can help them lead a happy and healthy life down the road.

Here are three ways you can ensure they learn good habits that will take them far.

#1: Make Them Start Paying for Some of Their Own Stuff

Without any financial obligations, it's easy for teens to blow their whole paycheck on going out with friends or hitting up the mall.

Help them to learn some responsibility by asking them to start paying for some of the discretionary things you've been covering up until now.

Maybe it's time they start paying for their own clothes or chipping in for gasoline and car insurance payments. Perhaps they should stop receiving an allowance at home, and rely entirely on their earned income for clothes, toys, games, concert tickets, manicures, haircuts and other purchases. Encountering "bills" at an early age will help your teenager learn to budget better for their wants.

#2: Give Them Store-Specific Prepaid Gift Cards

Another way to encourage your teen to budget wisely is by giving them a little more freedom when it comes to the things you are still paying for.

If you're still covering their school clothes, for instance, get them a gift card to a local department store for the exact amount you're willing to spend. (A gift card is better than cash, as it limits their ability to spend the money on anything they want.)

It's up to them to decide what they'll buy with that gift card; if they want that pair of designer jeans, they can get them, but with the understanding they'll have nothing else left in the budget for other clothes. This forces them to prioritize their purchases and learn to consider opportunity costs.

#3: Teach Them How to Use Credit Properly

Once your teenager becomes a legal adult, they're eligible to open a line of credit. And if you haven't taught them the right way to handle these cards, it could take them down a slippery slope that leads to all sorts of debt problems.

Help your teen understand the responsible way to use credit by making them an authorized user on one of your cards (ideally a card with a low spending limit, like $1,000. You can call your credit card company and request that your limit gets lowered.)

Explain exactly how the arrangement works: if they doesn't pay off their share of the of charges in full each month, you will charge them the same amount of interest the credit card company would, plus late fees. You can even give them a spending limit, so they know they can only charge so much at a time.

You'll be able to monitor your teen's spending regularly both online and on your account statements, giving them a chance to learn on their feet while they still have the safety net of knowing you can step in to counsel them or remove their authorization privileges. They'll learn real-world consequences in a more controlled and secure environment.