From passing the driver’s test to graduating from high school, a teenager’s life is filled with milestones on the path to adulthood. But one important “real world” skill often goes overlooked — money management. Here are four ways parents can help their teens and pre-teens ace personal finance before they leave the nest:
1. Help them connect the dots between work and money.
Stop giving kids that flat allowance, advises Elle Kaplan, CEO and founder of LexION Capital Management 1 who routinely advises parents on how to instill a sense of financial confidence into their children. “Instead, they should be paid for specific extra chores they are assigned and that they accomplish. They’ll develop the concept that money must be earned. Pay is not automatic—but is recognition for a job well done,” says Kaplan.
2. Give them hands on experience.
When your child obtains their first job, help them set up a checking account and use tools like direct deposit, automatic savings plans, and online banking apps that empower them to manage their money.
3. Teach them how to budget.
Though budgeting may seem like a task reserved for adulthood when you manage bills in tandem with pay schedules, Kaplan says there is great value in introducing the concept long before then.
“It’s really the beginning of a lifelong lesson in goal-setting,” he says. The next time your child sets his or her sights on that one special video game or prom dress, give your first budgeting lesson.
“Help them do the math to figure out how many chores they will need to do to earn the money to buy it for themselves.” Aside from learning to save, they’ll also learn about resisting the temptation to spend on a less coveted item that could thwart their savings progress.
“These lessons ultimately teach kids how to take initiative and plan ahead to achieve their goals, paving the way for a lifetime of self-sufficiency and financial health,” says Kaplan.
4. Instill a sense of entrepreneurship.
Kaplan advises parents to encourage kids to think creatively about how they might use their skills to earn money. For instance, an excellent student may thrive as a tutor. Animal lovers might experiment with a neighborhood pet-sitting or dog-walking service. Sports lovers may enjoy helping a pee-wee sports team learn basic skills. Once they do start to make their own money, Kaplan advocates a disciplined approach.
“They must learn to budget their earnings, and to have that budget enforced. If your child spends all their money, they should not get to come to Mom and Dad like a personal ATM. Set expectations about what you’ll pay for — and what they must fund. It’s the best thing you can do for your kids’ long-term financial health,” says Kaplan.