Getty Images. Art: Jillian Sellers.
Any parent of a teen knows that talking to their child about, well, anything can be challenging. But that doesn't mean parents should skip those hard conversations, especially when it comes to teaching your teen how to manage their money, deal with credit, or stick to a budget. Plus, they likely have their first job and will be heading off to college soon to claim their independence. One report found that 70 percent of college grads say they learned their financial skills from their parents. But how can parents broach this sometimes-tricky subject, sans eye-rolling? Read on for a parents' guide to teaching teens about money.
Money Management for Teens
Much like the other milestone "talks" you're bound to have with your teen, (ahem, the birds and the bees) teaching them about finances should also start with an open and honest conversation.
"It's funny, we have 'the talk' with our kids about sex and drugs. But for many parents, those uncomfortable conversations are easier than teaching our kids how to manage money," says Sallie Mae spokesperson Rick Castellano. "That said, having open, honest conversations about money and finances and giving kids skin in the game can really go a long way to building financial independence."
Castellano suggests starting with a simple budget that lists out all possible sources of income, how much they need for necessities and how much they want to save each month.
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Budgeting for Teens
Sixty-nine percent of Generation Z (those born from the mid-1990s to the early 2000s) say they don't have a clear understanding of how much they should spend versus how much they should save for long-term goals, a recent study found. In other words, most teens have no idea how to set a budget.
One of the most effective ways to teach the concept? Give them insight into the family budget.
"Sharing the reality of your family budget can help your teen grasp key financial concepts such as compound interest, delayed gratification for those things that matter most, and thoughtful savings," says Leo Tucker, managing partner at Northwestern Mutual. "I also recommend making the process of handling money as simple as possible."
For example, for every dollar your teen earns, provide them with four different buckets in which they can allocate their funds, he says. These buckets can include savings, expenses, charity, and investments.
You've probably heard of the 50/30/20 rule. But it's also a great way to teach teens about constructing a workable budget. "An easy way to think of this is to follow the 50/30/20 rule with 50 percent going toward essentials, 30 percent going toward personal spending, and 20 percent going toward savings—an easy budgeting guideline that can be followed at any age," says Shirley Yang, head of marketing for US deposits at Marcus by Goldman Sachs.
First Credit Cards for Teens
If the idea of giving your child a credit card scares you, you're not alone. But it's a necessary evil. After all, helping your teen learn to responsibly use credit and build a credit history is an important financial lesson. Start with a teen-friendly credit card with a low spending limit. You also might consider a secured credit card. These cards require a security deposit to open the card, which then serves as your credit limit. Below are a few solid options for your teen's first credit card.
Apple Card—Ideal for older teens (it's for ages 18+), this card is built right into your teen's iPhone, so there's no chance of them losing it. Well, unless they lose their phone, but that's a whole other story. Apple Card's design is intuitive, customer service can be reached via iMessage, and it even has the capability to send out weekly and monthly spending reports, so your teen can see how their spending stacks up.
Journey Student Rewards from Capital One—This $0 annual fee card, created just for students, is a great first card option. It's meant for those with no or little credit history to start building a positive credit history. Users are covered by a $0 fraud liability (meaning that if their card is stolen, they won't be on the hook for fraudulent charges). They can also set up automatic monthly payments, and they can even qualify for a higher line of credit after six months of responsible use.
Discover it Secured Credit Card—This card is one of the best cards out there for building credit. Here's why: Since it's a secured credit card, you'll be required to put up a security deposit for your teen to start using the card. You choose the deposit amount up to the card's approved credit limit. Also importantly, unlike most secured cards, this one will build credit history with the three major credit bureaus. Additional highlights include no fees, and—bonus—the option to earn cash back, another rarity for a secured card.
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Regardless of the credit card you opt for, it's wise to keep a close eye on your teen's spending—including keeping tabs on their monthly card statements. You also may want to take it a step further.
"If you provide your teen with a credit card, I recommend having a contract with them," Tucker says. "There should be bill transparency for two reasons. First, to help protect their credit rating; and second, it is the best way to show them the impact of credit and fees, as well as showing them how quickly debt is created."
And before helping your teen open a credit card, be sure they actually understand the basics.
"You can't expect your teen to make smart decisions with credit if they don't understand how it works," says Dana Marineau, a VP and financial advisor at Credit Karma.
"Before giving your teenager the green light to get a credit card, make sure you've covered the basics, including how credit works and why it's different from cash, what happens when you charge money to your credit card that you don't repay, due dates and penalties for late payments, who is responsible for paying the bill, and how to do it."
Best Money Management and Saving Apps
While there are countless apps out there to help teens manage their money, the most important aspect of an app is that your teen is actually interested in using it.
"The most effective money management app is one your teenager will consistently use," Castellano notes. "It has to be engaging, simple, and genuinely helpful. There are also goal-based savings accounts like Smarty Pig, for example, that allow you to not only earn a good return on your savings but also lets you set goals and track your progress toward meeting them."
Some great options for money management apps for kids:
FamZoo—The FamZoo family finance app teaches kids how to manage their money by allowing for the creation of accounts that give every dollar a purpose—such as saving, investing, giving, and spending. You can also create incentives within the app to reinforce financial behaviors that align with your values.
Savings Spree—Another financial literacy app (this one for kids 7 and up), Savings Spree teaches users about saving, investing, donating, and spending, all via a game show format.
Bankaroo—Billed as a "virtual bank" for kids, Bankaroo teaches them how to spend responsibly and save for their short- or long-term goals.
RELATED: The Best Money Saving Apps
And perhaps one of the best strategies for teaching teens about money? Not turning it into a monologue.
"Keep the conversation short, avoid lectures, and make it enjoyable," says Tucker. "It's great to be transparent with your family budget and use real-life examples. It also helps to offer to match their savings for a greater incentive."
These incentives can include summer camp, a big purchase like a gaming system, or a special outing, like a concert with friends.