7 Tips to Help Your Teen Improve Their Financial Literacy

Kids reading books about finance

You worry about your teen in many ways. You worry about what they eat, what they wear, who their friends are, and how they do in school. But as they get older and become interested in getting a part-time job or deciding what career path to pursue post-high school, a new worry has likely entered your mind: finances. 

Schools may cover many topics, but they often drop the ball when teaching teenagers about money, taxes, and everything in between. So, it’s up to you to help your budding son or daughter get a good foundation on all things finance. 

You’ve come to the right place to get started. Keep reading to learn seven practical ways to help your teenager learn about finances. 

What is Financial Literacy?

First, let’s cover some basics. It’s important to understand exactly what encompasses financial literacy because it’s many different topics. Having sound financial literacy means a person can make informed, thoughtful decisions about their money. This usually means they have a decent grasp on the following topics:

  • Budgeting
  • Investing
  • Debt management (and an understanding of credit cards and loans)
  • Retirement planning
  • Financial concepts (APR, compound interest, the time value of money)
  • Fraud 
  • Taxes

Why Does Financial Literacy Matter?

Financial literacy matters for everyone so they can adequately care for themselves. Money is necessary for food, shelter, and comfort. Unfortunately, competent financial knowledge isn’t as widespread as it should be. One survey found that in 2024, only 50% of US adults will be financially literate. 

The downside is having less security in life and retirement because you don’t know how to manage your money effectively. The data backs this up. In 2021, Americans lost an average of $1,389 due to poor personal finance knowledge.

As your teen is about to enter years when they might take out student loans, move out, have bills, and even get a career, their success in life will largely depend on their ability to make smart financial decisions. 

7 Tips to Help Your Teen Improve Their Financial Literacy

Kids reading books about finance stack on top of each other

Here are the best ways you can help your teen improve their financial knowledge: 

1. Get Them a Bank Account Now

If your teenager doesn’t already have a bank account, consider getting one now. A bank account can help them start tracking their money. If they primarily deal in cash, this will abruptly change when they leave high school as they accrue bills, such as cell phone bills, car insurance, rent, student loans and fees, and credit cards. 

Consider switching their cell phone bill to come out of their bank account, even if you continue to pay it. It will be their responsibility to keep the money in their account so they learn to never miss a bill payment. 

2. Have Them Set a Savings Goal

Another way to utilize that fresh new bank account is to set up a savings account. Ask them to consider setting a savings goal, such as purchasing a car, a new phone, or for college. You can incentivize them by offering to match a percentage of their savings. 

Make sure it’s a High-Yield Savings Account (HYSA) so they can see for themselves how their money can grow just by being put aside. 

Learning to save is a critical life skill they’ll carry throughout their life as they buy their first home, a new car, and more. 

3. Teach About Investing

Technically, your teen can start investing already if you help them set up a custodial account. But, even if they’re not interested in this, you need to talk to them about the importance of investing. You want to explain the concept of compound interest and show why investing for retirement and wealth buildup is vital for their future. 

Consider telling them the difference compound interest can make with this example:

If you start investing $100 monthly today and continue for the next 10 years—and then never invest again—you’ll still likely earn more over the next 50 years than if you start 10 years later and invest $100 a month for 40 years.

4. Distinguish Wants vs. Needs

Sit down and help your teenager understand the difference between a want and a need. There will be times in life, especially right after high school, when their earning potential is limited, and they’ll have to balance wants and needs. 

Not being able to delay unnecessary purchases can lead to excessive debt, which can limit one’s options later in life. 

5. Practice Budgeting 

If you try to bring up budgeting with a teen, they’ll probably look at you with pure boredom. It’s not the most entertaining topic, that’s for sure. But it’s something that needs to be discussed. 

Once again, budgeting is a critical life skill, so your teenager doesn’t live a life of constant debt. 

You can make this topic more interesting by making it practical. What does your teenager want to do after high school? Try to budget out their scenarios, whether it’s trade school, college, or a local minimum wage job. Let them see how much their intended plans will cost so they can start considering how they’ll pay for it. 

6. Talk About Borrowing

Most Americans need to borrow money at some point—for college, auto loans, or a mortgage. Your teen is probably no exception. So, you need to teach them the basics of borrowing money. They need to understand that borrowing isn’t free money. Concepts like interest rates and paying back on time and in full are all important to discuss. 

7. Lead by Example

The last thing you can do to help improve your teen’s financial literacy is to lead by example. Talk openly about money in your household. Don’t hold back from sharing the mistakes you’ve made so your child can avoid repeating them. And teach them the value of money so they know that a $200 pair of shoes isn’t just a treat; it’s hours of work and lost savings potential. 

Your Teenager’s Future is Bright

The fact that you’re here thinking about your child’s financial knowledge already puts your kid at an advantage. Too many Americans don’t know the basics of financial topics because the school system or their parents didn’t teach them. Now, you have the tools to set your teenager up so they can manage their money effectively from here on out. 

You might also be interested in: 6 Ways Parents Can Teach Their Kids Financial Independence

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