Kids' interests and activities steadily evolve as they mature and move through middle school and high school.
So, too, does their understanding about money's role in their everyday lives.
Parents can help ensure their children set a healthy foundation in their relationship with money by identifying, talking through and reinforcing lessons they can grasp—both painless and, yes, sometimes a little painful.
Consider the discussions Thomas Hay is having with his 14- and 16-year-old daughters. If he gives them $20 each on a Friday and the following Thursday one of them is invited out but has no money left over from the previous weekend, he feels no obligation to cover the new expense.
"If she chose to spend the entire $20 at the mall over the weekend, I want to make sure she appreciates that she made that decision previously and if she'd thought about it differently, there might have been a different outcome," said Hay, chief operating officer of consumer banking at BOK Financial®. "If we step in and shoulder that consequence, we're actually robbing them of the opportunity to really understand financial decision making."
Perhaps just as valuable as the lessons themselves are the way they're presented, according to Kim Bridges, director of financial planning at BOK Financial.
"For teenagers, I think parents really need to look at framing the conversations around the benefits of being disciplined and spending less than they earn," Bridges said. "Provide positive examples of how saving money can allow for more in the future, and be sure to praise them when they forego current ‘wants’ to save for a more meaningful goal."
Frequent and frank chats
As with much in a child's life, some of the most significant influences on how they view money and personal finances are found at home.
According to the 2022 Teens and Money Study from Fidelity Investments, 70% of teenagers said they're related to their financial role model.
And for all of the havoc wreaked by the pandemic, lines of communication between kids and parents opened up amid the challenges. According to the 14th Annual Parents, Kids and Money Survey from T. Rowe Price, the percentage of parents who talk to their kids about finances at least weekly rose to 47% in 2022, up from 22% in 2020.
For older children, conversations are key to setting the context for what money's coming into the household, what's going out and what to expect down the road.
“For many kids, the teen years coincide with parents being at the peak of their careers, so teens look around at the house they live in, the cars they drive, the clothing they wear and how they entertain and they tend to set the expectation that that's what they should have.”- Kimberly Bridges, director of financial planning, BOK Financial
"They may not realize when their parents were younger they scrimped, saved and didn't do some things because they didn't have the budget for them. Most teens really don't understand what it takes to afford their current lifestyle," Bridges said.
For a full explanation, that can mean opening up the books and covering the mechanics of the household finances. Or, if there are sensitivities around divulging the particulars of the family budget, parents could assign some research on the local average monthly costs of:
- Rent or mortgage payments
- A cell phone
- Health care
- An auto loan payment
- Vehicle insurance
- Fuel and maintenance for a vehicle
Once the child has an extensive picture of such expenses, discuss how they compare to the region's average household income. Then, perhaps most importantly, have them compare the total expenses to the average starting salaries of several jobs they're thinking about pursuing.
"When you lay out the real world situations and then emphasize paying bills first as part of making a budget, then how you'll spend and save the rest—teens may start to understand how to prioritize their spending," said David Reynolds, director of product management and competitive intelligence at BOK Financial. "And that can have a positive, long-term benefit on the future financial situation of your children."
Align with present realities
Hay said expanding the scope of discussions from when the children were younger adds a layer of relevance for today and the future.
For example, when one of his daughters said she wanted to get her nails done for a spring dance but balked at picking up additional household chores to help cover the $100 cost, Hay zeroed in on renewing an important lesson.
"It went back to the distinction between needs and wants, but I explained that she really wanted the nails done when it was free, but once there was a price she would have to pay, she valued it very differently," he said. "As they grow older, the situations they're weighing become more challenging, dynamic and costly, and as a result, the consequences of their decisions get bigger and bigger."
Especially when buying on credit is just around the corner.
Bridges has helped too many adults dig themselves out of financial holes created by massive student loans and credit card debt lingering from young adulthood. She encourages parents to make it crystal clear to their kids how borrowing to buy elevates an actual purchase price.
"Too many people don't understand how interest works—either in the true cost of items they buy on credit, or in terms of the value of long-term compound growth," she said. "Parents need to teach their children the dangers of credit card debt before they can get their own credit card."