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December 10, 2024
No matter how much the value of the dollar changes, one thing that will pay off forever is financial education. Taking the time to sit down with your teen to discuss finances is the first step in building a strong foundation. According to recent data from WalletHub, one in four young people aged 12-27 say they are not confident in their financial skills and knowledge, and more than 34% say their parents didn’t set a good example for them financially.
Involving your teens in conversations about money as early as possible will arm them with the knowledge and skills they’ll need in the real world. These discussions may even strengthen your commitment to your own financial goals, allowing you to be a positive role model for your teen.
The start of a new year is the perfect opportunity to talk with your teen and establish financial goals together. Some examples may include learning how to budget, planning for a big purchase, starting an emergency fund or saving for college tuition. No matter which goal – or goals – you and your teen have in mind, preparation is a key step toward achieving them.
Set SMART goals
People who set goals are 43% more likely to accomplish them. SMART goals are Specific, Measurable, Achievable, Relevant and Time-bound. Following the SMART goal-setting template helps ensure you’re setting reasonable, meaningful goals that produce measurable, tangible results.
But there’s one thing to do before setting any goals: consider needs versus wants. Needs are essential for survival, or in other words, the “must-haves.” Wants are the “nice-to-haves” and should only be considered after the primary needs are met.
Let’s say your teen wants to purchase a car within the next year. Turning this into a SMART goal is easy. Assist your teen in answering these prompts:
- Define relevance – How does achieving your goal benefit you? Think about how the result will improve your circumstances and make sure it adds value to your life.
- Get specific – What kind of car? Used or new? Knowing the details will help guide the plan.
- Plan to achieve – Do you have the means and money to achieve your goal? Before you start, consider what’s required for you to succeed.
- Set a deadline – When do you need to achieve this goal? This could be determined by when you need an item or how long it will take you to save, but setting a target deadline is a major driver of your budget.
- Measure progress – How will you track your progress? Breaking the cost down by month or quarter can help you visualize getting closer to your goal.
After examining each element, your teen’s SMART goal might be:
“I want to buy a used car before going to college in two years. I earn about $800 a month and plan to save more than half of my income to buy a car under $10,000.”
Create a financial plan
Now that you’ve identified what goals you and your teen are working toward, it’s time to create a plan. In this case, a plan is a budget and a timeline.
- Budgeting – Teaching teenagers how to budget is an essential life skill that sets them up for financial success in the future. Start by explaining the basics of income and expenses and the importance of tracking both. Whatever the source of your teen’s money – job, allowance or gifts – it’s important to have conversations about their income early and how they can be intentional about saving and spending.
- Spending and saving – Instilling a savings mindset in your teens early will benefit them later in life. Teach them to discern how much should be set aside and how much can go toward non-essentials or “the fun stuff.” There is a balance between enjoying life and saving for goals, but learning to value long-term financial security is a skill that can’t be learned too early.
- Tracking progress – If your teen has a checking account, or better yet, a checking and savings account, tracking progress will be much easier. It’s also a real-time way to watch discipline in financial decisions pay off – literally. In today’s digital age, there are plenty of apps that help people budget, but for learning purposes, breaking out a Microsoft Excel sheet (or a similar application) is also a useful way to lay out your desired budget and timeline.
Execute the plan responsibly
Achieving financial goals takes discipline and requires impulse control. It’s important to know the difference and impart that knowledge to your teens.
- Prioritization – Looking at financial decisions through the lens of priorities can help your teen make informed and effective choices. For example, you may not need new shoes, but you need gas to get to and from work. Engaging in regular check-ins with your teen is one way to track progress and scheduling them weekly can help keep the goal top of mind and allow you to make necessary adjustments to ensure your teen achieves it.
- Education and resources – While money management can feel daunting, remind your teen that no financial goal is achieved overnight. Resources, like calculators, are available online to assist with budgeting and are often accompanied by tips for saving. Online financial wellness courses geared toward kids and teens are also available to help build their skills outside of your involvement.
- Conversation – Continuing to discuss money with your teens in a positive way is the most crucial piece of early financial education. For so many families, money is a touchy subject, and that mentality is passed down to children – whether we know it or not. By involving them in real-life financial decisions and providing practical examples, you can help them develop a sense of responsibility and confidence in managing their own money.
Remember, not every goal or plan will go as expected. Life is unpredictable, and it’s important to teach your teen to be flexible. When you have an adaptive mindset, staying on track is easier, even when faced with unexpected financial challenges. Every generation aims to achieve more than the one that came before, and if we take the time now to arm our teens with the skills they need, we are significantly increasing their chances for success.
