Reading, writing, and arithmetic… things kids learn in school. But how will they learn to budget, use a credit card, save for a car or a down payment on a home, and stay out of debt? Financial responsibility is just as important for a successful future but it often falls on families to teach money-related lessons. Before a teenager leaves the nest, they should know these basic financial concepts to lay a foundation for success in adulthood.

Spend: Budgeting and Banking

Allowances can serve as a reward for doing chores and also provide lessons in saving and budgeting. A monthly allowance—instead of weekly—gives opportunities for planning ahead because the cash needs to last longer. Creating a budget will lead to a discussion about prioritizing needs over wants and figuring out how to spend less on some things so you have more to spend on others. You might suddenly find your kid packing a snack at home, for example, instead of visiting the vending machine at school.

One approach: divide income into three categories: save, spend, and give. Open a savings account and help them learn about banking, accruing interest, and planning for long-term goals. Many banks offer teen checking accounts with a debit card with parental access and controls.

Set up direct deposit for paychecks, if possible, and have your teen check the balance from their mobile phone. Review their paycheck and why their take-home pay is less than their total earnings. Talk about taxes, the various deductions and what the government uses the money for, and who must file a return. You might also consider a youth brokerage account to help them learn about investing.

Spend: A Course in Good Credit

With money in the bank, it’s time to talk about how to access it. Teach them the importance of spending within their means.

A debit or prepaid card can help your teen make purchases without incurring debt. These methods help instill the mindset of spending only what they have before introducing a credit card. When it comes to credit, consider adding them as an authorized user on your account before applying for their own card. To maintain the “spend-within-your-means” mindset, consider requiring receipts for your purchases and collecting cash for each expense.

Review the credit card bill explaining annual fees, interest charges, late payment fees, and the consequences of amassing debt. Paying the bill together helps form a habit of checking charges, correcting mistakes or fraudulent charges, and paying attention to due dates.

Next, explain the basics of credit scores, such as how they’re calculated and how they can affect a person’s ability to borrow and make large purchases as an adult.

Save: The Importance of Emergency Savings

While the fun part of earning is spending, the stress happens when we fail to plan ahead. One of the most important financial habits is maintaining an emergency savings account. Explain that attending a party or building your wardrobe is not an emergency. Discuss costs like replacing tires on a car so it passes inspection.

Emergency savings act as your financial safety net so you don’t wind up in debt when something you had not planned for comes up. Help them develop spending discipline while keeping emergency savings separate from their spending money.

Finally, explain the importance of emergency savings in adulthood. What happens if you lose a job or get in a car accident? Introduce the “emergency savings rule of thumb” to set aside enough to cover three to six months of your living expenses.

Give: Supporting Causes that Matter to Them

One way to introduce the concept of donating to charity is to share information about the contributions you make. Explain why you chose organizations and how recipients benefit. Perhaps your teen is an animal lover, has a friend battling an illness or a relative who is a veteran, or is interested in another cause that benefits from financial support.

Help them select a charity, discussing the importance of researching to make sure your donations go to benefit those in need. Teach your teen about itemized tax deductions and how charitable donations to qualified organizations can reduce your tax bill.

Staying Safe from Scams

Like teaching your teen about online safety, it is important to discuss things like identity protection when debit cards, banking apps, and online donations enter the mix. Explain that they should never share passwords, online banking information, or account numbers. Teach them to regularly check bills and account statements for fraudulent charges and show them how to report purchases they don’t recognize.

If your teen is like most, you probably worry about them losing their debit card or phone. Show them how to lock their cards immediately and unlock them when they find the card slid down between the car seats.

Building healthy money habits in the teen years is a foundation for lifelong success. If you have questions about how to communicate a financial concept to your teen, reach out to the MoneyNav team to schedule a 1:1 coaching session. We aim to help your whole family achieve financial success!

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.