Having ‘The Talk’: The Importance of Talking to Your Teens About Money
Personal Finance

Having ‘The Talk’: The Importance of Talking to Your Teens About Money

Story Highlights
  • Being intentional about your finances is a valuable skill to develop, regardless of your age or station in life.
  • Talking with your teenager about finances will help them to internalize this important lesson.

Raising teenagers comes with all manner of challenges. As they begin to come of age and discover themselves, these young adults are old enough to make decisions but not quite mature enough to fully comprehend the consequences of their actions. This makes it all the more important to talk to your teens about money.

Every child is unique, as is the relationship they share with their parents. Understanding how to communicate life lessons can be fraught with emotion, especially when it comes to an issue as intimidating as money.

As you conduct this conversation with your teenager, try to remember to emphasize the following points.

The Importance of Budgeting

The concept of limited resources can be difficult to grasp for young children, as is the idea that choices have opportunity costs. While they probably never truly believed that money grew on trees, it is hard to feel the effects of spending decisions when their parents are providing for all their needs.

As they grow older and more aware, it becomes more important to be open with them about the amount of funds that are available. Explaining how a budget helps to plan out your family’s spending and subsequent purchases can be a valuable demonstration of the inherent trade-offs between any financial decision.

This lesson can be all the more powerful if it used within the context of their own finances. Help your teens to think about how they are using their own money, both now and into the future (see below). This is best if it is money that they are earning themselves on an ongoing basis, but it also holds true for one-off events.

Even receiving a $100 birthday present is an opportunity to discuss their spending choices. Instead of simply going to the mall and spending this cash on the first impulse buy they chance upon, help them to think about how they want to use this money and how this reflects on their priorities.

Understanding Their Paycheck and Tax Obligations

There are many benefits to having a job as a teenager, which extend well beyond the monetary compensation they are earning.

Working teaches valuable lessons, such as the importance of accountability, punctuality, and presenting a professional face to the world. Earning that first paycheck is a very satisfying experience, though it is often times accompanied by the shocking realization that your total wages do not equal your take-home pay.

Make sure to sit with your children to help them understand the idea of taxes, Social Security, and their overall contributions to the economy. While most minors will not need to file a tax return, chances are that they will do so at some point in the future. Helping your teenager internalize that not all of the money they earn is “theirs” is a valuable lesson to understand early in their working career.

(Any minor who can be claimed as a dependent will need to file a tax return only if their income exceeds their standard deduction, which is $13,850 for the 2023 tax year. This will not be relevant for most.)

Think About Their Future Self

As you talk with your teens about their finances, try to help them understand the trade-offs between their current and future desires. This does not need to be something hazy in the distance, such as buying a house or building their retirement accounts.

For instance, if they want to purchase a car, they can begin putting money aside from each paycheck to work towards this goal. This holds true for a special technical gadget, a new outfit, or a special outing with their friends down the road. You want to help your teenager to understand that their wallet should not be a sieve, automatically spending whatever money comes their way on immediate consumption.

If they have not done so already, teenagers should open a bank account. They can even begin thinking about investing a portion of their money in a Certificate of Deposit or perhaps the stock market. Discuss with them their different options, or introduce them to a professional who can help them navigate the various possibilities at their disposal.

Having an investment vehicle to put their money aside for the future will channel them into the habit of prioritizing savings. This is a skill that will pay dividends down the road.

Conclusion: The Virtue of Intention

The teenage years are a time to experiment with choices and identities, and parents can and should give their children space to try, to search, and sometimes even to fail. These wonder years are a time to learn what works, but also what does not. Some of the best lessons we learn are from our mistakes, which can include purchases that we come to regret.

Parents can guide and encourage their children to be responsible with their finances, and setting a good example is one of the most and effective steps they can take. Do not be afraid to be open about your own experiences, and show how you approach your personal finances and decision-making.

At the end of the day, the best way to achieve good financial hygiene is to learn to live within your means, while being intentional about how you spend, save, and invest your money. This is most valuable insight that you can help your teenager to realize. It will serve them well throughout their entire life.

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