Building Financial Literacy in Teens in 6 Steps

Photo by Kenny Eliason on Unsplash

Looking back at high school, there were very few opportunities to learn about financial responsibility and financial literacy. However, nowadays, there is a growing number of classes that help teens begin to build their financial literacy skills and prepare for “the real world.”

However, according to Greenlight, 75% of teens learn about finances from their families. But where do you even begin? Below are 6 actionable steps to begin building financial literacy in teens in your home!

1. Practice Budgeting

Budgeting is one of the most basic ways to demonstrate financial responsibility.

When I’m in the classroom, I often hear students talking about the things they “need” to spend their money on - going out to eat, new shoes, gas for their car, and paying for big expenses. Have a conversation with your teenager about how to budget for these things!

One of the first ways to start the conversation is to identify what is a want expense and what is a need expense.

Sometimes, I am shocked at what students consider is a need, when to me, it is a want. Those $250 shoes - a want. Gas for the car - a need. When building financial literacy in teens, take the time to identify wants and needs together, plus figuring out what their budget looks like!

A great basic budget system that provides practice in identifying wants and needs is the 50/30/20 budget.

2. Explain and Encourage Savings

Saving is an important part of being financially responsible, but it also is the thing that seems to be cut when budgeting.

Make sure to explain to your teen that savings are just as important as any other bill that they will have - I love how Jeremy states that you should “pay yourself first” in his Savings First Budget post.

Explaining the importance of a savings account and why you should have one - saving up for a big purchase, having a rainy day fund, retirement, etcetera - allows teens to start building that financial literacy skill and understand WHY they should build that up. 

Then, after establishing why you should have savings, encourage them to save their money. Maybe they get money for their birthday - sit down and talk about putting a certain percentage away into their savings and ALWAYS do that.

3. Discuss Earning Money

Another major building block in building financial literacy for teens is talking about earning money.

This is incredibly important when demonstrating budgeting. Talking with your teenager about making sure they make more money than they spend is so important!

A key aspect of understanding their income is knowing the difference between net and gross income.

Basically, gross income is what you make before taxes and deductions are taken out. Net income is what you take home after those things come out of your paycheck. While gross income may sound nice, you have to factor in that there are deductions and you should really be paying attention to that net income number.

A great real-life way to teach teens about earning money is to allow them to get a summer job after the school year. This allows you to sit down each payday with your teen to discuss their paycheck, practice budgeting, and build up their savings account as well!

4. Share Personal Experiences

One thing that I always recommend doing is to share your own personal financial experiences with your teenager.

Talk about that time you bought a new car and regretted it. Talk about when you could only afford ramen noodles for a week until payday. Not only will your teenager get to hear about real-life situations, they will also get to see that it’s okay to not have it completely figured out because you didn’t either!

5. Include Them in Conversations

This one is a step that my family did not make, which made it hard for me to understand finances once I was on my own. Include your teens in your financial conversations as a family.

Make it normal to discuss finances together as a family. It’s important to not only understand financial literacy but also how to talk about it as your life changes and grows.

Seeing that happen within their own family normalizes the conversations around money for their future families too!

Talking about and building financial literacy in teens starts with talking about debt - both good and bad.

Everyone will take out debt in some way during their life - whether it be college loans, car loans, a mortgage, or a credit card - there will be a point when the debt will be accrued. But understanding what is good and bad debt is important when making those financial decisions.

With discussing types of debt, make sure to touch on credit cards and how to use them responsibly.

When I first turned 18, my parents told me to never get a credit card - that was it. However, as I learned more about credit cards, I realized that it was okay to get a credit card, as long as I used it responsibly!

Another key talking point is discussing credit scores. Understanding the things that contribute to them and how to build credit is important - so take time to not only discuss but show yours too.

6. Model Good Financial Behavior

Overall, each of these steps is based on the idea of modeling financial literacy to your teen.

Bring them into the conversation of your own household budget, discuss your credit score and demonstrate checking it for errors, show them that you are putting money into savings and explain why you’re doing so.

Modeling is one of the biggest teaching tools we have as parents, so use it and make sure they are watching!

A Final Note

As parents, it can be overwhelming when you realize there is so much to teach them over those first 18 years together.

Adding financial literacy to the list can be intimidating, as sometimes we as parents don’t know all the answers either. However, these 6 steps are a great starting place to begin building financial literacy in teens.