Is Your Teen Financially Fit?

Dear Parents of Teens,

The pandemic has changed our everyday reality in so many ways—financially, educationally and socially. Money may be tighter, your kids may be doing online school, and we're all spending a lot more time at home. But for all the changes in our everyday lives, according to a recent Schwab survey, there's one thing that hasn't changed for a lot of people: the importance we place on financial education. In fact, in the face of new economic pressures, parents who took the survey rated money management as the most important skill for their kids to learn—outranking health and wellness education as a supplementary graduation requirement to math, English and science. 

The question, of course, is where do kids get this crucial education? Schools are getting better at it. Twenty-one states now require high school students to take a personal finance course. That's a start, but there’s a lot more work to be done. Here's where you as a parent can help fill in the gaps.

Five practical ways to get started

With your kids home more these days, you may have more opportunities to start a conversation about money. And if your family economics have changed due to the pandemic, there's even more to talk about. But real learning comes from doing. So instead of just talking about money, give your kids some hands-on money experiences and responsibilities. For instance:

• Use daily opportunities as “teachable moments.” When you’re paying bills, let your teen see what it costs to run a household, how bills get paid and a checkbook balanced. If you pay your bills online, show them how it's done—and how online bill-pay is linked to your checking account.
• Pay an allowance only once a month. To learn how to budget and save, kids have to have their own money. Once your child is a teen, consider giving them their allowance monthly instead of weekly; that way they can also learn how to make their money last. Help them understand the difference between needs and wants and how to budget for both. (If you've had to make trade-offs in the past year, let them know why and how you did it.) Make them responsible for a certain share of their own expenses (for example, clothing, new electronics or extra-curricular activities). Most of all, let them learn from their mistakes. Don't immediately come to the rescue if they come up short.
• Open a checking account. Show your teen how to use a check register and review monthly statements online or on paper. Guide them in using a debit card wisely and keeping track of debit expenditures. Show them how to use an ATM machine for deposits and withdrawals, and talk to them about potential fees associated with different accounts.
• Help make savings a habit. Help your teen open a savings account. Talk about goals and setting savings priorities. Suggest saving a percentage of any earnings or gifts toward a goal. If your teen has a job, have them set up direct deposit from their checking account to their savings account. Consider matching a portion of their savings to further motivate them to put money away for the future.
• Get them started investing. Saving gives you money to work with, but investing puts your money to work. Teaching your teen about compound interest can be eye-opening. Using fractional shares to invest in stocks can be a fun way of getting them involved and engaged in conversations about how the stock market works. If your teen earns a paycheck, you can help them set up an IRA for the  future.   

Evidence it works

Does financial education work? Recent studies confirm the positive effects of financial education on behavior and decision-making and that the effects are long-lasting. While more research and support is needed, I've seen the results myself through my experience with the Money Matters: Make It Count program offered through Boys & Girls Clubs of America (BGCA). Kids who participate show dramatic improvement in their understanding of personal finance concepts.

Now in its 17th year, with over a million teens having participated in the program, Money Matters has shown some remarkable results. Part of the success derives from BGCA’s efforts to make the program relevant to teens through a wide range of experiential activities and content.

A great example is the Money Matters Reality Store, a real-world interactive workshop, where kids discover firsthand how education, career, family and spending can impact their financial futures. There's nothing like experiential activities to give kids a taste of financial reality. In fact, giving your kids some extra screen time for financial videogames that simulate real-life economic experiences can be an excellent motivator!

More than just money

Financial education is about our sense of well-being, creating equal opportunities,even strengthening our relationships. So the more we can share with our kids about our own money management practices—from household budgeting to saving to investing—the richer their lives will be on many levels. Be open and talk freely about how you handle your money; teach them by your good example. And be sure to give them feedback as they make their own financial decisions.

If you need to sharpen your own knowledge in any particular areas of personal finance, visit SchwabMoneyWise.com, which offers tools and resources for anyone who wants a refresher in the basics, as well as those just starting out.

But don't let schools off the hook. If a financial literacy class isn't offered at your teen's school, get involved. Petition your school district to have one added to the curriculum. To me, money management is a critical life skill that everyone needs.

Have a personal finance question? Email us at askcarrie@schwab.com. Carrie cannot respond to questions directly, but your topic may be considered for a future article. For Schwab account questions and general inquiries, contact Schwab.