When it comes to money management, most teens don’t feel very confident. According to a 2015 study by the Opinion Research Corporation, nearly half of teens surveyed report feeling pretty clueless about money management, while 90 percent said they don’t feel they have learned much of what they need to know.
Even more worrisome is the fact that American teens don’t compare well to their peers in other countries. On a 2014 test administered by the Organization for Economic Cooperation and Development to teens in 18 countries, American teens fell below half of their peers in other developed economies when it came to financial literacy.
In an economic landscape where people are living longer and dealing with financial services and systems that are more complex, today’s youth are already making more financial decisions than what was necessary 30 or 40 years ago. That makes the low financial literacy scores among U.S. teens even scarier.
The good news is that you can help your teen become more financially confident. “We develop confidence when we can connect the dollars we have with what we want in the future,” says Nancy Anderson, a senior financial planner with Key Private Bank in Salt Lake City, Utah. “There are three ways you have money: what you earn, what you save, and what you spend. Learning to link these concepts is how you develop confidence in the way you use your money.”
Here are some tips to help your teen develop that financial confidence:
1. Teach your teens to save when they’re still young
“Even if it’s just a little bit at a time,” says Anderson. “Encourage her to learn to think long-term.” Help your teen begin to differentiate “between needs and wants,” adds Sherri Kitzberger, CDFP with Olympus Wealth Partners in Beachwood, Ohio, “so they learn the concept of delayed gratification.” Tech gadgets are an easy way to start. Your teen wants a Fitbit like all her friends? Help her work out a savings plan to achieve that goal.
2. Create value so teens understand what they are spending and why.
Explains Anderson: “Here’s one example I use with teens and Millennials. Your family can eat out at Chipotle three times per week and spend $120, or you could make burritos at home and save $100 per week towards a family trip instead.” Spending purposefully helps connect money with future goals.
3. Give an allowance that increases with age.
“For tweens and teens, having some money of your own to learn with is a critical skill,” says Anderson. Supervise how your teen spends that allowance: Save half, spend half. Offer to match your teen’s savings, which he can spend at a later date on something fun—like that high-end mountain bike he’s had his eye on.
4. For an older teen, set a monthly allowance for clothing or toiletries.
“She’ll learn the concept of budgeting, of deciding what is a need versus a want, and the importance of not buying something just because it’s on sale,” says Anderson. “This will give her some control over spending and also allow her to make some mistakes and skin her knees while the stakes are relatively low.”
5. When you dole out the allowance, review the previous month.
What worked and what didn’t? If your teenager ran out of money, discuss what to do differently next month. Practice how he can handle situations where he is out of money and still wants to make plans. Help him practice by thinking of some alternatives so he is comfortable having this conversation with his friends: “Guys, I’m out of money until next week. Let’s see a movie at my house instead.” In this way, he can learn to prioritize his spending and develop the confidence to handle these situations in his adult life.
6. Lastly, encourage your teens to negotiate so they learn to self-advocate.
Tell her to ask for $10.50 an hour for babysitting instead of $10. Encourage him to sell his used sports equipment on eBay or Craigslist and negotiate for the most money. “A college graduate who is offered $30,000 but negotiates for $35,000 will earn a half million dollars more over her earning lifetime,” says Anderson. “Over time, it really adds up.”