Financial Education for Teens

Financial literacy is more than just a valuable skill—it is a necessity. With only 26 states currently requiring a personal finance course for high school graduation, many young people enter adulthood without a solid understanding of money management. So, how can we provide financial education to our children to potentially alleviate long-term financial struggles? 

Teaching financial literacy to teens and young adults can be challenging: many adults don't have their finances together which makes them feel unprepared for teaching their children; the topic of personal finance may be seen as a private issue; and research indicates a neurobiological basis for teens to pay less attention to parents' advice and put more emphasis on the advice of new people. So, how can parents, grandparents or guardians equip young adults with the knowledge and tools they need to make informed financial decisions? 

1. Encourage Smart Budgeting Habits

Understanding what a budget is and how it helps control spending, allows teens to prioritize expenses, and avoid unnecessary debt. Learning to track income and expenses at a young age lays the foundation for financial stability later in life. By practicing budgeting skills early, young people can develop habits that lead to long-term financial security.

It's important to lay the foundation of Needs vs. Wants as early as possible with children. Later in life, essential expenses such as food, rent, transportation will need to be prioritized over non-essential items such as new  clothes, drive-thru coffee, or entertainment.

Sitting down to create a budget starts with income, expenses and goals. Start by identifying income, which may come from allowance, jobs, or gifts. Next, identify and track expenses to help them understand where that money goes. Finally, make sure you include goals for savings. You can set up your kids with  a notebook, apps such as BusyKid, Greenlight, or FamZoo, or a spreadsheet to create a budget and show them how to track expenses. It is also important to help teens understand that a budget will need to be reviewed periodically in order to assess their progress and make any adjustments for changes in income, new expenses or changing goals.

2. Help Avoid Debt and Credit Pitfalls

Credit cards and student loans become financial traps if not handled appropriately. Many young adults accumulate significant debt because they don’t understand interest rates, minimum payments, or the consequences of missing payments. Financial literacy enables them to make informed choices about borrowing money, using credit responsibly, and understanding how debt affects their financial future.

Parents can give teens access to a credit card by adding them as an authorized user to their existing credit card accounts. Think of this as a credit card with training wheels. This approach allows teens to use a credit card and potentially build credit history, while the parent retains control of the account. It's as simple as calling your credit card company, requesting a separate card for an authorized user and setting a limit to the credit line appropriate to the child's age. For example, a teen with a car may purchase gas, handle auto repairs, or be asked to pick up groceries for the family using the credit card tied to the parent's account. It is important to outline your rules and limits for using the card with your teen prior to handing over that credit card.

Note: if the primary cardholder struggles to make credit card payments, this method is not recommended as it can have negative implications for both the cardholder and the teen. Or, if you are concerned about misuse of credit cards on behalf of your teen, you may want to consider prepaid credit cards or debit cards attached to a separate bank account.

3. Build Strong Savings and Investing Habits

The earlier you start saving, the more financial security you can build. For example, if a 16-year-old invests an initial $500 and contributes $100 per month, they could have saved nearly $50,000 by the time they’re 40, based on a 4 percent interest rate.¹ (This is a hypothetical example and is not representative of any specific situation. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing.)

Many banks offer teen and student checking accounts starting at 13 years old. These accounts typically offer special features aimed toward young adults and they provide teaching opportunities for the teen to learn responsible spending, saving and learning how to make wise financial choices (or make those financial mistakes in a safe environment). You can also set up a savings account to show teens how to automatically transfer funds from the checking account to savings on a monthly basis. Check with your financial institution to see if you can set your teen up with one of these accounts - it usually requires a visit to the local branch and you will most likely need to be named on the account.

Teach your teens about emergency funds, compound interest, and investment strategies helps them grow their wealth over time. There are no minimum age requirements to open a traditional,  Roth or custodial IRA, so even minors can start investing in a retirement account, if it makes sense to do so.

Understanding how to save and invest allows teens to take advantage of financial opportunities and hopefully avoid living paycheck to paycheck in the future.

4. Decision-Making and Financial Independence

When teens and young adults understand financial concepts, they become more confident in making financial decisions. This confidence can extend to everything from housing and transportation to major purchases. Mistakes will happen, but it's important to learn lessons from those mistakes and adjust your strategies to minimize risks going forward.

Having a relationship with a financial advisor provides an opportunity for your teen to learn about investment options, create a long-term financial plan and set financial goals.

5. Preparing for Long-Term Financial Goals

At some point in their lives, your teens will become adults with goals of buying a home, starting a business, or strategizing for retirement.  Knowing how to budget, save, and invest builds a solid financial foundation for future success. The sooner you start, the greater the potential for a solid foundation to work toward those goals. 

Financial literacy is more than learning how to handle money; it’s about taking control of your financial future. By equipping teens and young adults with essential financial knowledge, we can steer them away from common financial pitfalls to set them up for lifelong independence. Investing in financial education early on is one of the best ways to create a financially responsible and empowered generation.