Nurturing Frugality In Teens: 5 Tips For Teens And Parents For Better Money Management

I was surprisingly frugal as a teenager. I bought most of my clothes, purses, and jewelry from the thrift store, eager to make the most of my allowance.

Little did I know that real-world money management involves much more than finding a good deal on a pair of shoes. I didn’t know what a credit score was, how to apply for student loans, or how the heck interest worked.

In short, I was a financial disaster in the making, despite my frugal habits.

I turned out all right, but it’s best to form healthy financial habits well before you’re an adult. You need to develop good money habits as a teen so you’re well-adjusted and prepared for the inevitable realities (and the occasional cruelties) of adulthood.

Whether you’re a shrewd teen yourself or parenting a teen, there’s no better time to get ahold of your finances than the present.

Do Teens Really Need Money Management?

But you might wonder, “Does a 15-year-old really need to understand credit scores? Shouldn’t they be enjoying their teen years?”

I say yes to both! Financial literacy and happiness aren’t mutually exclusive; actually, a financially responsible teen is a happy teen.

If you aren’t sold on saving money as a teen, consider this:

• Habits are formed right now: The second a teen leaves home for college or the workforce, their old habits carry over into their adult life. I not-so-fondly remember the decisions I made when I was 18 and, let me assure you, young adults do so much better when prudent financial habits are instilled at a young age.
• Talking about money makes it less taboo: Why can’t everyone have frank conversations about money? In my opinion, an informed society is a successful society. That starts with teens understanding how the world of finance works before they leave the nest.
• Savings is always important: Maybe it seems too early to save for college, a car, a house, or even retirement, but teens have time on their side. The sooner they start saving, the better off they’ll be in the “real world.”

How Parents Can Help Teens Save

It’s hard to think about it, but your teen will be leaving the coop before you know it.

As a parent, you can’t trust the school system to educate your teen on money, either. Very few schools in the US teach personal finance or financial literacy; everything your teen learns about money will come from you.

While it’s a full-time job just keeping your teen out of trouble, you’ve also got to show them how the real world works. Follow these tips to prepare your teen for the realities of adult life so they can have a more secure financial future.

1. Teach your kids common financial concepts

Your teen might learn about things like inflation in their high school economics class, but that isn’t enough. You can’t expect your teen to be responsible with a credit card if they don’t understand how interest works. You also can’t expect them to prioritize savings or investments if they’ve never heard of “compound interest.”

Find a way to educate your teen on concepts like:

• Interest
• Compound interest
• Credit scores
• Loans
• Debt
• Inflation

You don’t have to be comprehensive here; just give your teen a simple understanding of these financial principles so they can make connections more quickly.

2. Invite them to your next budget meeting

Healthy financial habits start at home. If you want your teen to get hands-on experience with budgeting, invite them to your next budget summit. Show them your income, expenses, and savings. This should give your teen an idea of what it takes to manage household finances.

3. Get your teen a bank account or credit card

My parents, bless them, gave me a pre-paid credit card when I turned 16. I was able to use it for gas, groceries, takeout, and various expenses while running errands.

This required a lot of trust on their part, but it gave me experience with using credit cards responsibly.

Obviously, don’t give your teenager a credit card with a $20,000 limit.

Go to your credit union (or in my case, USAA) to request a special card for your teenager. These cards have low limits of around $200 or so.

Help your teen track their expenses, looking over their statement at the end of each month. If they aren’t paying the entire balance off each month, pull out a calculator and show them how interest works in the real world.

P.S. This can be a good way to build your teen’s credit early! 

4. Show them how to save

Monkey see monkey do, right? Even if your teen thinks you’re “so totally lame,” you can still encourage them to develop a savings habit.

Teach them how to budget and save! A simple paper budget, Excel sheet, or budgeting app can give your teen experience working with their money. Even if they don’t have a part-time job, you can still encourage your teen to budget their allowance and expenses.

Help your teen create a budget with different categories for expenses, income, and savings. Whether you want to teach them the 50/30/20 rule or the envelope method, make sure your teen is learning how to save.

5. Oh, and don’t be a nag

You really do want the best for your child. If your kiddo doesn’t have a great track record with money, I’m sure it’s frustrating trying to encourage positive habits.

But remember when you were a teen? The best way to make a teen not do something is to nag them. Scolding, scaring, or chastising your teen is a no-go if you want them to absorb what you’re teaching.

If you’re trying to pass on your wisdom and it isn’t sinking in, refer your teen to a trusted family member who they get along well with. YouTube is also a great resource!

Money Management Tips For Teens and Young Adults

Whether you’re a teen yourself or parenting one, every fledgling adult can benefit from these 5 savings tips for teens.

1. Sign up for a bank account

It’s hard to manage your money if it’s underneath a mattress! First things first, teens need to sign up for a bank account.

Most banks offer accounts for minors (usually with reduced fees). In my case, my parents set up a USAA Youth Banking Account that converted to a full account when I turned 18.

If you’re a parent, let your teen do the bulk of the work here; let them make the phone calls and fill out the paperwork. The more experience a teen has setting up the account, paying bills, and using an ATM card, the better off they’ll be.

2. Get an income source

I never had a part-time job as a teen, and I always regretted that. When I entered the workforce after college, I had no idea how to fill out a W-2 or how taxes worked. I was a hot mess.

So, if the teen is able, it’s a great idea to get a job of some kind. Whether you mow lawns on the weekends or work part-time at McDonald’s after school, a source of income helps teens practice managing money.

And hey, it’s nice having money of your own! There’s a rush of freedom you feel when you earn your own money and can spend it however you like.

But earning an income usually comes with more responsibilities, like paying for a car, gas, or your phone bill.

It’s important for teens to have the experience of earning their own income. If they use that income to cover their personal expenses, that’s even better. You learn very quickly that money is a limited resource this way, and you have to learn how to manage your funds.

The downside to teen jobs is that they don’t offer consistent pay. If you’re trying to budget on inconsistent income, take your average earnings from the last 3 months to create a budget you can work with.

3. Know how much you’re spending

How much do you need to cover with your income? Teens don’t usually have to worry about grocery or rent, but it’s not unusual for them to pay for their own vehicle, social outings, clothes, or video games.

While I’m an old soul and budget in an Excel spreadsheet, a budgeting app is the easiest way for teens to understand their expenses.

4. Create savings goals

The purpose of a budget isn’t for you to break even; it should help you manage your money in a way that helps you save for the future. The more you save now, the more you can avoid the debt and financial stress that comes with full-blown adulthood.

What do you want to buy? Short-term goals like buying an Xbox or long-term goals like paying for a college apartment are so important. When you know what you’re saving for, you can meet your goals more quickly and prevent debt.

Because teens have unpredictable incomes, it’s best for them to save a certain percentage of their monthly income. For most teens, a 5 – 10% savings rate is great. For example, if you earn $100 mowing lawns, save $10 for a rainy day fund.

5. Cut expenses whenever possible

Frugality is always a good skill, but when you’re living on a small budget as a teen, discounts matter a lot!

Know how to cut expenses so you can save more money. Learn how to:

• Find coupons. Coupons.com is a great place to start, but the Honey Chrome extension is my fave for online shopping.
• Do the math. Learn how to calculate the per-unit cost of discounted items to see if they’re a good deal or not.
• Practice delayed gratification. You can avoid a lot of stupid impulse purchases if you wait 24 hours before buying non-essentials. Trust me.
• Have fun for free: Your friends will want to go to restaurants and movies, and that’s okay. But it costs money! Learn how to have fun for free to preserve your hard-earned money.
• Avoid debt: You don’t need those $300 shoes to live, and you certainly don’t need to pay for them with a credit card. If you don’t have the cash to pay for something, you can’t afford it; it’s that simple.

The Bottom Line

I like to refer to the teen years as “Adulthood Lite.” It’s your time to experiment with decision making—and dealing with the consequences of your decisions.

It’s easy for teens to make money missteps because this is the first time they’ve ever had to manage their money. It’s typical to overspend and learn about money the hard way.

But guess what? Parents can help their teens avoid messy situations in adulthood by creating positive money habits. As a parent, be sure to:

• Teach your kids financial topics.
• Include your teens in budget meetings.
• Help them get their first checking account.
• Show your kids how to save money.
• Help them instead of nag or chastise.

Teens can take their financial future into their own hands, too. It comes down to:

• Getting a checking account.
• Finding an income source.
• Tracking your expenses.
• Setting savings goals.
• Cutting expenses.

Whether you’re a parent or a teen who’s ready to take on the world, follow these 5 money management and savings tips to forge a brighter, happier path informed by wise financial decisions.

Keep Reading:

• Parents: How To Effectively Save For Your Child’s Education
• Should Kids Get An Allowance? How We Created A Money-System For Our Family
• The Power of Saying No: How Teaching Kids about Instant Gratification Will Affect Their Future Finances