The pandemic has presented many new opportunities for parents to be involved in their children’s education. Although teaching fractions with baking, historical reenactments of history in the living room, and science experiments in the backyard are fun, this is also a great opportunity for parents to offer some practical and beneficial learning about financial literacy, especially with teenagers.
Young Adults Are Unprepared to Manage Their Finances
According to the National Financial Educators Council annual survey, only 24% of student respondents, and 20% of parents, say that students are prepared to deal with real-world financial challenges.
That means more than 75% of young adults have some sort of fear and confusion about earning money, handling finances, and creating good systems that will help them throughout their lives.
4 Financial Literacy Skills For Teenagers
The Council for Economic Education, only 21 states in the country require a personal finance class to graduate high school and a majority of high school students say that they get most or all of their personal finance knowledge from their parents.
Below are some tasks that are important for everyone to know how to do, and can help start the conversation with your teen. Introducing them to terms and paperwork that you wish you’d known at their age will help give them the confidence and knowledge to act in their best financial interest.
Yes, these ideas might get you some eye-rolls and long-suffering sighs, but if you help your child become familiar with these concepts in adolescence, you will be helping them take a huge step toward adulthood and financial literacy.
1. Create a Budget
Most adults aren’t great at budgeting, as evidenced by year after year of failed New Year’s Resolutions. Reviewing your household budget with your child now is a great way to help them manage their finances in the future.
- Go over tools: If you use a spreadsheet or an app to track your money, show your child what categories your family needs and discuss what categories apply to them at this time of their life. If you don’t have a family budget yet, create one together using an online tool or app, like Mint or You Need a Budget.
- Have your child create their own budget: If your child is currently working or has a source of income, help them create their own budget and discuss with them the amount of money that goes into each category. Be sure to include savings, giving, and an entertainment budget.
- Research college costs: For older kids headed to college, have them research apartment rent around the schools they’re thinking about. How does that compare to what the cost of a dorm would be? Will they take (or need) a car? What about food and books?
Budgeting isn’t a glamorous process, but if you can get your teen into the habit before they leave home, they will have a head start for the rest of their lives.
2. Go Over Your W-2
Tax forms are confusing, especially if you’re new to the workforce. We only see them once a year and for many people, they are a trigger to one of the biggest adulthood stressors —
- Review your W2: When you download your W2, go over it with your teen and compare it to your end-of-year pay stub. Do the numbers add up? Can you see where and how the gross amount you made turned into the net amount through
taxes, FICA, and retirement savings?
- Explain a 1099: Did you get a 1099-NEC for contract work or a 1099-DIV from an investment account? 1099’s have a lot of information on them, but there are several youtube videos that walk you through what everything means, like this video from TD Ameritrade.
- Review a W4: This is also a great opportunity to download a W4 form and go over paycheck withholding using an online calculator. Show your child why you elect to withhold what you do, and in the process, you might find some changes you want to make to your current withholding.
Becoming familiar with these forms and what they mean now, while they have you as a resource, will give your child a running start in personal finance, and will give you some peace of mind about their abilities.
You and your teen have gone over most of the forms needed to finish your
- Tax Software: If you fill out your
taxeson your own, or use a software program, walk your teen through using it, especially if they have a part-time job, or have been gifted investment accounts in their name, and have to prepare taxesthemselves.
- Gather Documents: If you use a tax preparer or an accountant, gather all your documents and show your child what the preparer will ask for, how you organize documents, and how much it costs to have your
- Track Your Refund: Close the loop by either having them help pay the IRS (if
taxesare owed) or checking your bank account for your refund and discussing what you’re going to do with that money. Make sure to emphasize savings for at least some of it!
4. Research FAFSA or Other Financial Aid
College is expensive and even if you have a 529 College Savings account for your children’s education, chances are good there will be a gap. Sit down with them and discuss:
- How You Paid for College: Tell them the story of college that we don’t often talk about. Did you have to take out loans? How long has it taken you to pay them back (bonus points if you discuss both positive and negative compound interest), and talk about if there is anything you would do differently looking back.
- Introduce FAFSA: Introduce them to the Free Application for Federal Student Aid, or FAFSA, and if they’re old enough, start working on filling it out. You’ll need your most recent tax return to complete it, so have that handy.
- Understand Financial Aid Options: If they aren’t quite ready for college yet, review the Understanding Aid section of the FAFSA website, and get familiar with the process of financial aid. Discuss what their plans for the future might cost, and answer or research any questions they have about paying for things together.
Below are some books and websites that you and your child can read together. These books go into more detail on financial literacy for kids and are a good refresher for adults, as well as an introduction to concepts for teenagers. Just remember that no book is a substitute for parents teaching their children how to apply concepts in the real world.
- Why Didn’t They Teach Me This In School? 99 Personal Money Management Principles to Live By, by Cary Siegel
- Financial Basics: A Money Management Guide for Students by Susan Knox
- The Motley Fool Investment Guide for Teens: 8 Steps to Having More Money Than Your Parents Ever Dreamed Of by David and Tom Gardner
- O.M.G.: Official Money Guide for Teenagers by Susan Beacham and Michael Beacham
- National Financial Educators Council This website offers a lot of financial statistics but also has financial literacy tests, broken down by age, that you and your child can take together to test your financial knowledge.
- The Mint The US Mint’s website offers fun games for younger kids, and discussion topics and pitfalls of financial literacy for teenagers and parents.
- Transunion: Learning the Basics This site provides a general overview of compound interest, credit scores, and the actual cost of debt, and can be a good conversation starter for you and your teenager.
There are many more topics involved in financial literacy, including investing, insurance, and banking. The topics above are both pertinent to young adults as they enter the workforce, and also commonly not discussed when we first set out in the world. By providing a good foundation on these subjects, and continually having conversations about them as your child grows, you will have given them a head start in the world.
What do you want your teens to know about managing personal finances? Let us know in the comments below!
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Kate Daugherty is a freelance writer based in Denver, CO. She specializes in grant writing, finances, and senior health.