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A parent's guide to financial literacy for teens

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As the old adage says, “Money makes the world go round.” But according to the Milken Institute, only around 57% of Americans are financially literate. The key lies in promoting financial literacy for teens, as early financial education leads to better money smarts in adulthood.

To stamp out financial illiteracy in the future, parents need to talk to their teens about saving, investing, and spending — 67% of parents and teens say money is their most talked about topic. You can start by teaching your kids key financial lessons and helping them practice the skills first-hand.

We’re here to help! Keep reading to understand what you can do to set your kids on the path toward financial knowledge and success.

5 ways to encourage financial literacy for teens

You want the best financial future possible for your kids. And you know that starts with a solid foundation of financial literacy. Here are five things you can do to teach your teen the personal finance lessons and life skills they’ll carry with them throughout their life.

1. Help your child understand needs vs. wants

The first and possibly most important step toward financial literacy for teens is to navigate the often murky waters of needs versus wants. Parents usually foot the bill for most of the needs of a teenager, which can make this distinction even more difficult.

At its root, needs are something that every person requires: housing, clothing, food, and transportation. Wants are everything else, or something a teen would want, like a movie pass, a concert ticket, or a Big Mac.

A straightforward way to separate needs and wants is to have your teen use their own money to contribute or pay for a few of these expenses, such as:

  • Gas

  • Car insurance

  • Cell phone

  • Entertainment

  • Food and drink outside of the home

Once teens start to pay for some of their expenses, the difference between needs and wants will become clearer. Suddenly, needs become a primary issue and wants are put on the back burner, which is a huge step in the right direction for personal finance success.

2. Encourage your teen to get a part-time job

Teen girl working at smoothie shop holding two drinks, gets direct deposit via Greenlight money account

While study and extracurricular activities are integral to learning in high school, so is a summer job or part-time job

A job jump-starts basic financial literacy for teens through real-world experience. They’ll learn first-hand about earnings, income taxes, bank accounts, and money management. A job can even help your child save for their education or reduce student loans, which is an expense that has grown exponentially in recent years.

Part-time employment can also build essential life skills like:

  • Time management

  • Conflict resolution

  • Decision-making

  • Responsibility

  • Self-discipline

  • Critical thinking

  • Problem-solving

Developing these soft skills now will help your teen wow future employers.

3. Explain debit vs. credit

Americans owe $807 billion in credit card debt. This underscores why kids and young adults should learn about the difference between debit and credit cards as well as the best ways to use each.

When it comes to this lesson, financial literacy for teens starts with a debit card. Since debit cards use the funds in a bank account to pay for items or services, it protects teens from overspending and keeps them from accumulating debt.

Debit cards are almost like training wheels for a credit card and ease your teen into better spending habits. It’s up to you if you want to eventually upgrade your teen to a credit card.

If your child is under 18, they won’t be able to get their own credit card, but you can add them as an authorized user on yours. For kids that are 18, they can apply for their own credit card, but they typically need a cosigner to get one — you.

Even if you decide to stick with a debit card for your teen, it’s still a good idea to discuss bad debt versus good debt, such as a mortgage, car loan or life’s other big moments. Moreover, a discussion of interest rates, annual percentage rates (APRs), credit scores, and proper credit limit usage (30% or less) is also paramount.

4. Teach the habit of saving

Parent talks to children about financial literacy using Greenlight

The cornerstone of financial literacy for teens is saving. Teens should learn to save during this stage of life when they have minimal bills. It will help them grow their finances and start a nest egg early on. Plus, your teen can create savings goals, whether it’s for a car, a vacation, or just a cool new toy.

But let’s be honest. A savings account isn’t exactly an exciting topic for most teens and isn’t likely to pique their interest. While it may not seem like a glamorous topic, you can teach it in a way that’s fun and engaging:

  • Have a friendly savings competition between siblings (maybe you even match a percentage of their savings at the end of the competition)

  • Show them how compound growth can increase the value of their money over time

  • Help them find a savings account with an impressive interest rate, cash back or savings rewards that can boost their balance even more

While saving is part of the financial long game, try to point out any short-term savings wins to help motivate your kids to keep going. 

5. Give your teens a crash course in investing 101

Since its creation, the stock market has been the greatest builder of wealth on the planet. Although it has its risks and is by no means a guarantee of money generation, it’s a financial topic that should definitely be part of the lesson plan of financial literacy for teens.

Although most teens are too young to invest in the stock market, Greenlight® has an investment platform that will teach kids and teens the basics of investing through videos and other engaging materials. Plus, you can invest on their behalf and let them get involved in choosing fractional shares. Your kids can’t make any moves without your approval.

This will help them avoid many of the pitfalls of amateur investors, such as pump-and-dump scams where fraudsters hype up a stock to inflate the price and then sell their own shares or investments in “meme stocks” and other poor investments that can drain finances rather than build them.

Financial literacy for teens might not center on investing, but it should certainly provide an introduction.

The ability to build wealth starts today

From savings accounts to investment accounts to debit cards, financial literacy for teens starts with small victories and incremental knowledge, but it’s still the quickest way to financial independence as an adult.

As a parent, you can get the ball rolling. Teach your kids about needs and wants, encourage them to get a job, explain debit cards vs. credit cards, and include discussions about saving and investing. The money lessons you teach can give your child a head start toward their financial future and goals. Well done on helping your child take these early steps!

Greenlight is here to help. Download the app to kick-start your teen’s financial skills. With cash back and savings rewards, a debit card, and lessons on investing, the only thing that’s left to do is watch your teen’s financial knowledge grow.


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