One of the greatest gifts that you, as a parent, can give your kids is the money talk. And just like with that other talk, tweens and teens aren’t always receptive to what parents have to say—whether it’s about consent or compound interest. But as teens become more independent and think about life after high school, it’s just as important for them to learn about financial literacy as it is to do their own laundry.
At this age, kids are starting to earn their own money through jobs like babysitting, shovelling snow, or part-time summer work. Learning how to make sound money decisions now will help give teens the confidence to make better decisions tomorrow.
What is financial literacy?
Financial literacy can be defined as “the ability to use knowledge and skills to manage financial resources effectively for a lifetime of financial well-being.” In short: It’s knowing how to save, grow, and protect your money. Being financially literate helps with paying bills on time, managing student debt, and saving up for life’s big milestones. And like any skill, the earlier you learn, the more mastery you’ll acquire.
Where’s the best place to learn financial literacy?
There’s no better place to talk about practical money skills and financial literacy for teens than as a family at home, so kids can ask questions—and make mistakes—in a safe space. After all, no one is more interested in kids’ financial futures than their parents.
Why is financial literacy important?
1. It gives kids accurate information
Not teaching your kids about money now can have repercussions down the line. While teens are taught aspects of financial literacy at school, they may also absorb incorrect information from friends, peers, or other adults in their lives with poor money-management skills.
2. It helps them understand the difference between needs and wants
As adults, we know the difference between what we need (food, a place to live, clothing) and what we want (supersize lattes, a tropical vacation, the latest phone).
But for tweens and teens, it can be easy to confuse a need with a want. By teaching kids about money, you’ll help them learn how to balance needs and wants without going into debt. Older teens may want to go on a trip with friends, but with even a little financial literacy, they’ll understand that this is a “want” they may need to budget and save for.
Tip: Teens can use our free savings goal calculator to see how many weeks it will take to save for the things on their wish list.
3. It teaches kids and teens the value of money
As a parent, you’ve probably said, “Money doesn’t grow on trees!” at least once. Unless there’s a trust fund in your teen’s future, chances are they will have to work for their money. While younger kids can earn a few bucks for doing chores, by the time they’re tweens, many kids start earning their own money through babysitting, mowing lawns, walking dogs, or other small jobs.
Teaching financial literacy sets the stage for smart money decisions now, which helps lead to better decisions with bigger payouts.
Read more about how kids can make money online
4. It shows teens how money can work for them
By the time they’re in their early teens, kids may be ready to understand the power of investing and making their money grow through compound interest. Advanced financial literacy conversations could revolve around what different investment choices look like, such as lower-risk investments or higher-risk stocks. If they make some smart investments with their part-time earnings, who knows—maybe your kids will retire earlier than you!
One way your teen can get practice in investing is through an RBC Practice Account. Wannabe Wall Street bankers can practise buying and selling investments, including stocks and ETFs (exchange-traded funds), track their holdings, and see how they are performing in real time. And don’t underestimate the power of family game night. Classic board games like Monopoly and Pay Day are always fun to play and can reinforce the financial education you’re giving them now.
Read more about the best money games for kids.
5. It allows teens to practise financial independence—with a safety net
Allowing your tween or teen to pay for their own designer jeans or expensive running shoes will actually help empower them to take charge of their finances as they move through life.
One way parents can teach practical money skills safely and securely is with the Mydoh app, which comes with a Smart Cash Card. Mydoh is designed to give kids the real-world experience of making and spending their own money. Your tween or teen can gain financial skills by making their own decisions on what to buy—and how much to spend on it—while you coach them along the way.
For instance, instead of giving kids tickets to a game and then spending money on top of that, with Mydoh, parents can transfer a set amount of funds to their kids’ Smart Cash Card. Then your teen can decide how to spend their entertainment dollars: tickets and takeout, or tickets and some cool merch? It’s up to them.
6. It helps teens learn how to avoid debt
Does the thought of your teen hitting the mall or shopping online with a credit card in their name fill you with dread? Talking about credit is vital in helping tweens and teens understand the importance of money and the consequences of making poor financial decisions. If your teen asks for a credit card, instead of giving an automatic “no,” help them understand that it’s not free money. Stress that a credit card should be paid in full each month because otherwise they will have to pay interest, which can end up costing them much more than the original purchase price—not to mention locking them into a cycle of debt.
If your teen isn’t convinced, run the numbers through an online credit-card-interest calculator to show just how quickly credit-card debt can add up.
Read more about debt 101 for kids
7. It teaches teens how to spot a scam
Teens are constantly online (not that we need to tell you), which means they’re vulnerable to cybercriminals who target kids in the hope of accessing money. Help your teen avoid online scams by teaching them the importance of protecting their account information and password. Also, tell them about the danger of opening strange and suspicious links, even if they look like they came from a friend.
Out in the real world, a savvy consumer attitude is another big part of financial education. Let your kids know it’s okay to ask questions before making a purchase, such as “What is your return policy?” Also encourage tweens and teens to do a little research before purchasing, such as comparing prices and reading online reviews, to help them make informed decisions with their money.
8. Because the future is coming
Getting a head start on money management skills will help set your teen up for fast-approaching independence. A financial education should cover the importance of credit scores, which will become an issue sooner than your teen realizes. A credit score is based on factors such as how much debt you have and whether you pay your bills on time. Bad credit scores in early adulthood could prevent teens from renting accommodation while they’re in university or getting a cellphone plan.
Kids and teens also need to learn how to be self-sufficient. Having them do regular household chores is one way parents can teach kids how to fend for themselves. Whether you are giving them a pure allowance (a set amount at regular intervals with no conditions), a chore-based allowance, or a hybrid of the two types, financial literacy will give teens the freedom to control their own money and empower them to make better decisions.
Read more about what’s the best allowance method for kids
Why it’s important for parents to share personal money lessons
Effective money management stems from good financial habits, and whether you have good habits or less-than-ideal ones, they are all jumping-off points for teaching kids. So don’t be afraid! As your kids get older, share your personal experiences and the money lessons you learned, for better or for worse. If you’ve had problems sticking to a budget or gotten into credit-card debt, be honest with your teen about your missteps so they can learn from your experience.
Share the good stuff, too—modelling financial successes will show your kids that smart money management helped finance some of the nicer things your family enjoys.
And because teaching sound financial skills means being open and honest, let your teen know that you’re keeping an eye on their spending. With Mydoh’s parental control, you can track what your kids are spending, react to their transactions with emojis, and lock or unlock their Smart Cash Card, if you ever need to.
The financial literacy bottom line
The earlier you start talking to your teen about financial literacy, the more resilient and better protected from financial stress they’re likely to be. Having finance smarts is something that will serve your kids throughout their lives and help set them up for a bright future as financially responsible adults.
Download Mydoh and help build a foundation of financial literacy for your kids and teenagers today.
This article offers general information only and is not intended as legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. While the information presented is believed to be factual and current, its accuracy is not guaranteed and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author(s) as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or its affiliates.
One less subscription to worry about.
No monthly fees means extra pocket change to go towards helping your kids earn, spend, and save.
