In spite of what some parents might say, teenagers begin to have improved reasoning skills. They are better at understanding abstract ideas and can understand cause and effect – an important skill that will help them understand how their financial choices will affect their future.
Explain to your child that when you invest money, you will earn interest both on your money and the interest that you earn. This concept can be a bit difficult to explain, so use the below example to help your teen understand how they can make money by earning interest on their investments.
Teens can also start budgeting for the things they want and any monthly expenses they may have. Have them list their estimated monthly income and expenses. Help them identify areas where they can cut down on spending in order to save money. Talk to them about something expensive they are saving for and how much they need in order to make the purchase. Agree to a parent-matching program (like a 401k) in which you will match their savings up to a certain amount. The budget and savings sheets on the next pages will help.
Finally, teach them about the stock market. Sometimes it can even be hard for adults to understand the stock market, but there are plenty of resources out there. Start by simply asking them to choose a stock to pretend to invest in, then look at the ups and downs of the stock price and explain why the price fluctuates. Kapitall.com is a great resource for teaching kids how the stock market works via gaming –and they can even graduate to using real money!