For parents of teens, it may seem like everything is a learning curve. On one hand, they're entering adulthood, but on the other, they don't necessarily have the life experiences that help shape decision making. This could ring especially true for finances and money management. Yes, your teen may be responsible overall, but money management can be tricky — not to mention hard for a teen to wrap their head around long-term goals.
With that in mind, we set out to give you a guide to getting your teen set up for potential success, both in their day-to-say spending habits and for the future that may seem far away. We tapped John Boroff, the vice president of Youth Investing at Fidelity® Investments, to help walk through how parents can get their kids on the path to building better money habits.
Have an Open Dialogue About Money
Emphasizing the value of healthy spending habits will lay the groundwork for your teen's entire life. That said, it's totally understandable that no one is perfect — even parents. It can be difficult to impart these values on your teen when you have a hard time with them yourself, and that's OK. "Even if you're a parent and you don't feel like you necessarily have the best habits, it's OK to not be a perfect example or to know everything," Boroff says. "You can kind of develop your own skills and maybe improve your own habits along with your teen."
With that in mind, try to make money a less taboo topic in your family, and instead see it as a collaborative effort between parent and child to learn and grow together. "We've seen multiple times through some of our studies that families who talk about money have better outcomes and more confidence," Boroff says. That's why the Fidelity® Youth Account can be a resource not only for kids but also for parents. "When we designed the youth account, [we made sure] that parents had the ability to monitor all the activity in the account. So every time something happens in the account, it's another opportunity for a family conversation around money."
Talk Through Budgeting
Setting realistic expectations around how your teen is spending their money is going to help them make smart choices about their purchases. And it doesn't have to be a heavy conversation or super formal — things tend to shift daily (if not hourly) in a teenager's life, so it's probably a good idea to create a plan that can stay flexible.
"For some kids, budgeting is hard [to plan] because they don't have very many fixed expenses," Boroff says. So he recommends starting with something as simple as a spreadsheet. List the money coming in at the top of the page, then list the money you're spending through different purchases below it, and subtract that from the total to see the amount you have leftover. "Then that rolls up to the next column, and you do it over again [the next week]," he says. "It's just a good habit to start. It's more establishing something that'll become more useful over time for teens."
Essentially, it's all about tracking what they're spending money on. "You may find that you're surprised that there's something that you're either spending too much money on or that just seems unnecessary. And that's where you'll be able to make decisions going forward about how you're spending your money," Boroff says. Things like avoiding impulse purchases and looking for deals rather than just buying something on a whim are ways a teen can start to think smarter about their spending.
Teach Them the Value of Long-Term Thinking
Of course, thinking long term can be difficult for a teenager. But it's in their best interest to at least get a jump on thinking through their financial future while they're young — and if nothing else, develop good habits. When it comes to investing, Boroff explains that even if teens aren't putting money into stocks or mutual funds and the like, it's great to start educating themselves and start thinking about their goals.
If they do want to start investing (with parental guidance, naturally), Boroff says that it's actually a great time since there's less risk involved vs. somebody who's nearing retirement. "You're not going to lose your nest egg; you're just learning," he says. This is also where something like the Fidelity® Youth Account comes into play and can be an invaluable resource for someone just entering the financial game.
"The Fidelity® Youth Account is so great because it lets teens start to exercise those muscles in a somewhat safe, guided environment," Boroff explains. "We've used the driving analogy in the past. It's like [if] a teen doesn't learn to drive in a classroom and then goes to take their road test immediately, because they'd probably fail and it could be really dangerous. They spend a lot of hours practicing. They've got their parent in the passenger seat to guide them. And we think investing is a very similar thing. So to have that same guided experience, whether it's your parent or a [resource] like Fidelity® helping to guide you while there's less on the line."
Nail Down Smart Spending and Saving Techniques
"One of the things that's really important for teens is making sure that they don't get in credit trouble early, because that can be really hard to dig out from," Boroff explains. "So understand how the credit system works and that you can use it to your advantage." For example, if you're paying off balances every month, you can get ahead of the game by accumulating points, getting cash-back deals, and being set up for a higher credit score that will come in handy down the line.
When it comes to saving money, the key is to just do it. Get the ball rolling. "I think for a lot of teens, when they first start to make money, their impulse is to spend it," Boroff says. "And you should be able to spend some of it without any guilt. So it makes it a lot easier, and maybe a little more guilt free, to establish like, 'Every time I make a $100, $20 is going to be saved, and the other $80 is fun money.'" Establishing some sort of saving habits so that you have a base or cushion for anything that comes up is something a teen should get used to doing. Encourage them to set goals and make sure that there's money being applied toward those.
The views expressed are as of the date indicated and may change depending on market or other conditions. Unless otherwise noted, the opinions provided are those of the speaker or author, as applicable, and not necessarily those of Fidelity Investments.
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Illustrations by Michelle Mildenberg