The top 5 things to teach your teenagers about money.
The top 5 things to teach your teenagers about money.
The money habits that teenagers develop can last a lifetime, so it’s crucial to get them started on the best foot. From budgeting and saving to education and being financially savvy - these are our top 5 things to teach teenagers about money.
1. Help your teenager to understand the value of money.
We’ve all learned the lesson that money doesn’t grow on trees, but if a teenager is used to getting everything they want and doesn’t equate hard work with the rewards that brings, it may harm their financial future in the long run. This doesn’t necessarily mean the only source of income they have is derived from physical labour, but there must be some form of sweat-equity associated with the money they have and some acknowledgement of its future usefulness before it’s spent.
Many of us may remember getting an allowance, birthday or Christmas money in our younger years and it burning a serious hole in our pockets - resulting in us heading off to the high street as soon as possible to buy that (quickly forgotten) ‘must-have’ item - this impulsiveness is just a result of ‘sudden windfall syndrome’ and although the figures involved are much smaller, it’s on a par with the way that adult lottery winners often end up broke again in short order.
Our grandparents may have told us to save for a rainy day, but as a teenager, if you’ve never experienced a rainy day, this advice will fall on deaf ears.
2. Involve teenagers in your household budget.
Every household should have a budget, large or small and whether it’s conscious or not, most adult households realise that money in must be greater than money out - running bank accounts down to zero each money is rarely an indicator of financial security. Obviously, you don’t have to share every financial detail with your offspring, but giving them some idea of what your household earns vs the national average, what that means after tax and how much is spent each month or year will help them build context around the value of money. Equally, it’s important to mention the gravity of investing for retirement and saving for big purchases.
For example, if you are a high earning family with new cars on the drive, frequent foreign holidays and eat out often, your teenager will need to understand that when they leave home, it’s highly unlikely that they will be able to live the same level of consumer lifestyle on their starting salary.
3. Educate teenagers about personal finance in general.
It’s a sad fact that many teenagers leave home with very little understanding of personal finance and will happily stroll into debt and save ineffectively, only to learn their lessons over the next decade or two before having to dig themselves out of an avoidable situation. Indeed, simply involving them in the household budget puts them well ahead of most adults, but they also need to have some idea of the steps they will need to take to buy a house later in life, what the figures could look like alongside the importance of saving for retirement - not least how compound interest means the earlier they start, the lighter the burden will be.
Learning about the basics of personal finance can help your teenager get off to a great start in life. From bank accounts to loans, credit cards, mortgages, taxes and salaries, so much of our lives revolve around money, not knowing how the basics work means your teenager could stumble into some serious financial mistakes.
4. The best investment a teenager can make is in their education and career plan.
Although starting saving early for a house deposit and retirement is important, the very best investment any young person can make is in their education - the impact this could have on their lifetime earnings is far greater than any investment gains made over the period of time they are in education.
However, it’s necessary to understand that not all education is equal and that any long-term commitment to an expensive degree, for example, really should have a career goal in mind. There was a period in time when universities were offering degrees in all sorts of off-beat subjects that have practically zero real-world application and it may be the case that going to a college or doing an apprenticeship in a practical skill offers far greater income potential for your teenager. Whilst some students are off racking up student loans and overdrafts for three years, only to move back home with no idea of what they want to do in life, others have been earning money since the day they left home, accruing practical qualifications and gaining the potential to start their own business or go self-employed in just a few years - with the potential to earn multiples of what some graduates ever do.
As a result, it’s vital that you maintain an open dialogue with your teenagers about their career aspirations and help them to formulate an effective plan to achieve their goals. Be aware though that young people have limited exposure to what real jobs actually entail and their opinion could be borne out of overly glamourised media exposure. For example, they could be interested in becoming an architect because they want to design the latest statement building in their city. In reality, many architects spend most of their lives at a desk, working on CAD systems, dealing with mundane planning applications or as part of a large team, working on repetitive detailing tasks.
The best way of helping them get exposure to different worlds is to help them get topical work-experience placements so they can see for themselves what a career in that field will hold, and allow them to change their mind frequently as they grow up. This is possibly a much more effective use of their summer breaks than having an entry-level summer job as we all know somebody that studied for years to be something only to realise they hate the subject matter and then have to start from scratch years down the line, just with more commitments and less flexibility.
5. Help them avoid high-risk investments, loans and gambling.
As soon as teenagers turn 18, they are fair game for online gambling outfits, loan companies and investment platforms, all hoping to build a lifetime relationship with your teenager. With exciting, low rate offers, introductory bonuses, free credits and more, the typical 18-year-old is going to have access to a whole world of financial risk that they have never been exposed to before. Plus, having grown up with the fairy-tale world of social media as their guide (where everyone seems to be a millionaire), this could be their opportunity to make a quick buck on a sure thing and gamble their way into debt.
Whether they are gambling in the traditional sense or hope to make huge sums of money from new cryptocurrencies, buying NFT artwork of penguins, running up the share price of ailing companies or high-frequency foreign exchange trading, what your teenager needs to understand is the level of risk involved in these things is off the chart and the truth is that not everything people post online has any bearing on reality. If you’ve never heard about any of these things before, your teenager definitely has and much more.
Yes, some people have made fortunes on all these investments, but there are many more that have lost everything. Anything that falls under the heading of gambling (or gambling adjacent) should be viewed as a bit of fun and only undertaken with money that can afford to be lost, anything more and it has the potential to cause life-changing financial problems.
Nonetheless, it’s a fine line to walk as you don’t want to make them so risk-averse that they don’t want to invest at all, which will also hamper their long-term wealth. Best of all is to be in a position whereby you openly discuss ongoing investments and make it clear that they can always talk to you if they start going down the wrong path before it’s too late.
Conclusion.
The teenage years are some of the most crucial in a person’s life; one minute they are a child and the next a fully grown adult with their own life. With so much of their personality being developed over this period, make sure that their attitude towards money isn’t left by the wayside as it could have serious, long term effects on their future.
What’s next?
If you need advice on pensions or how you can invest for the future, you can get in touch with one of our advisors for independent financial advice. We offer a free initial consultation and although we are based in Tunbridge Well, we advise clients across the UK.
Don’t forget, this article offers information about financial planning and investing and should not be taken as personal advice. Remember that investments and pensions can go up and down in value, so you could get back less than you put in. Tax rules can change and the benefits depend on individual circumstances.