What do teenagers need to know about money?
This question came out after a group coaching session for my Ultimate Financial Freedom Mastermind program. One of the participants popped into our Facebook Group and posted this message after the session:
Thanks for tonight. So much value in all the sharing. I have one thing to ask / get out of my brain before I turn in. I mentioned that my daughter has just landed her very first job and I want to make sure she starts well with good habits and lessons to carry her through life.
As I worked through Module 1 [of the Master Your Mindset course] and the beginning of Module 2, I realized that I wasn’t taught much about money but what I was taught was very harmful:
1) Earn well and spend it all.
2) I remember mom asking even before I got a pay check what I was going to buy.
3) I was taught to save but only for the purpose of buying something, not to actually just save and have money in savings or for the future.
I want to teach my daughter to save from the beginning and to live below her means. What are some good tools / tactics to do this for a teen with only one bank account and an already well curated sense of fashion?
As it happens, I also have two teenage daughters. Here is what I’ve taught them regarding their finances and money management. Since my older daughter is headed off to university soon, she’s getting a more in-depth education from me. But the following is where I’d start and it’s written directly to your teens.
Money lessons for teenagers
#1 – Understand the purpose of money
Most people use money without ever taking a moment to think about what it is, what it represents, and how they intend to use it.
Let me ask you this: What is money and what is its purpose?
It’s really not complicated.
Money is a tool. Period. Kind of like a hammer. 🛠️
It’s not an emotion – that’s what we bring to money.
That five dollar bill sitting in your wallet? It’s doesn’t come with emotions like “happiness” or “frustration” attached to it. It’s neutral. It doesn’t care what you do with it, nor will it judge you – because it’s an inanimate object.
And just like a hammer, it can be used to accomplish cool things or it can harm you. It’s all about how you use it.
Here’s the thing: Money is a powerful tool that can help you accomplish your most important goals and fund the things you value.
And there you have what it is and its purpose, all in one simple sentence.
Go to university? Absolutely it can help you do that if that’s what you want.
Ensure that you always have access to nutritious food, medical care to keep you healthy, and stimulating experiences and/or opportunities to help you thrive into adulthood? It can do that, too.
Buy cool things, if that’s what you want? Yes for sure.
Possibly the most important thing it can do for you over the long term is to live your life on your terms. That’s powerful stuff.
Bottom line: You get to choose.
#2 – Know what matters to you (your core values) and what you want (your values-based goals)
If you just start using money to buy things, without ever thinking about what you really care about, it will disappear and you will end up frustrated.
Years later, you’ll look back with regret on how you wasted all that money.
One of my daughters learned this the hard way. When she was an early teen, she used some of her allowance money (more on that soon) to buy makeup. A couple of years later, she threw most of what she had away and shook her head in frustration.
“What a waste of money,” she said. She’d figured out that she had only bought all that stuff because she felt pressure from her peers, to do what they were doing. Today, she doesn’t need or want any of that stuff. She only uses one or two things on occasion and that’s it.
Lesson learned. Now that she knows what she values, she spends her money wisely and gets much more joy out of the purchases.
That’s the difference between using your money on purpose versus using your money on automatic. 🎯
Know what you want and why it matters to you.
Will you change your mind about what matters over time? Yes, and that’s OK. It’s a natural part of growing up and learning more about yourself.
Just keep making conscious choices on purpose and you’ll be fine.
#3 – You are 100% accountable and responsible for your choices
When it comes to money, you are in the driver’s seat. You are powerful and capable.
Sure, as a teenager you’re not yet able to open accounts and make choices all by yourself. But I want you to know and to accept right now that you get to choose your behaviours and how you respond to what happens to you in life.
So many people go through life blaming others when things don’t go the way they had hoped. It never ends well for these people.
There aren’t any people who view themselves as victims among the world’s “successful” people. (I put “success” in quotes because it’s a loaded word that can be defined in a number of ways. You and you alone get to define what success means to you.)
If you want to be financially independent, secure, and eventually wealthy, then step into your power and take action today. 🎬
Learn what you need to learn.
Put it into practice.
Don’t make excuses.
When you fail – and you will fail on your way to success, because that’s a necessary part of the process – avoid the blame game. Repeat my motto to yourself:
No Shame, No Blame, No Judgement.
Look at what went wrong with curiosity and with the intention of learning. Then, adapt your actions and keep going.
You’re in the driver’s seat.
#4 – Establish money rules
This is part of creating goals. If you want your money to do its job for you, you need to tell it what job it’s supposed to do.
How much of it do you want to set aside as savings?
How much for spending?
If donating to charity is important to you, then how much of it do you want to put aside for giving?
When my girls were very small and they started to receive cash gifts for birthdays and money from an allowance we gave them, we made the following rules:
- You must save at least 50% of everything you receive or earn from part-time jobs (e.g. babysitting, dog walking, lawn mowing, tutoring, and working during the summer). These long-term savings are for your education and for use much later on.
- If you want to save up for a special purchase – like an expensive pair of jeans or AirPods – then set aside part of the remaining 50% of the money for planned spending. I called this short-term savings. This is for purchases you plan to make in the near future once you have saved up the money you need.
- Put 5% aside for giving. This is part of our values as a family. My husband and I give a much larger percentage to charity every year and we wanted our girls to learn to do this too using a smaller amount to start.
- Everything else goes into spending. This is your “No Questions Asked!” spending fund. Do whatever you want with this money! The goal is to enjoy it.
Every time my girls received or earned money, I would ask them, “How much do you want to put into long-term savings?” 🤔
Remember that my rule was that at least 50% would go here.
My girls quickly realized that saving for the long-term is a powerful thing to do, so they would always put more than 50% away.
It wasn’t unusual for them to save 70% or 80% of their money. As a result, they have built up impressive long-term savings accounts and will be set to pay for their share of university costs when the time comes.
Here’s an important reason to decide on your rules before the money lands in your account: If you don’t have a plan, the money will disappear.
People who try to save money after they do their spending never manage to save much.
People who get really good at saving money do so because they make it a priority and they do it first.
When you’re a teenager, save money first, then spend.
Follow your rules.
#5 – Open a Chequing Account AND a Savings Account
You need both.
A chequing account is where all money lands when it comes to you. Deposit everything into a chequing account.
Then transfer a percentage over to your savings account based on your money rules (see #4 above).
Savings accounts are for keeping long-term savings and money saved for planned spending. Remember that planned spending comes after you’ve set money aside for longer-term savings.
Don’t ask your parent to transfer the money for you. You’ll never get good with money if you have other people do the work. You need to develop this muscle, too. 💪
Ask a parent to do it with you. Insist on being involved in every task related to your money.
Ideally, you want to open a savings account at a separate financial institution. The reason for this has to do with psychology:
When we see a pot of money just sitting there in a savings account every time we log on to do something in our chequing account, we often develop an itch to spend it.
This isn’t because you’re a bad person or you’re undisciplined; it’s because you’re human.
There is a lot of research showing that a simple strategy to help you save more money is to a) do it automatically as soon as money comes in; and b) make your savings less visible to you.
Open a chequing account at Institution #1 and a savings account at Institution #2.
Right now, because you’re a minor, you don’t have access to the best choices for chequing and savings accounts. You’re stuck with the usual big banks or credit unions who offer junior accounts. So be it. This won’t last forever.
The second you turn 18, here’s what I suggest you do:
- Open a chequing account at an online bank. I currently use Simplii Financial and have done for nearly twenty years. It’s easy, it’s secure, and there are zero fees. That’s exactly how much you want to pay for a chequing account and e-transfers and cheques (if those are still a thing when you turn 18) –> $0. Do not ever agree to pay fees at a bank. It’s a waste of money. The banks already make billions of dollars of profits. Don’t give them any more money.
- Open a High Interest Savings Account. These accounts will pay you a lot more, relatively speaking, than regular savings accounts, which essentially pay you nothing for your money. Consider that the bank is using your money while it sits in the account (long story for later). They pay you interest as a form of rent. Don’t let them get away with paying you peanuts. Get a high interest savings account the second you can when you’re 18. I currently use EQ Bank for this.
#6 – Focus on building skills to earn more money
Getting your first job is a rite of passage. You’re earning money, which is awesome. But you’re also learning something much more valuable if you pay attention.
You’re learning that it can be hard work to trade your time for money.
When I was 14, I got my first job in a bakery. I hated every minute of it. They worked me to the bone and I earned minimum wage for all that work.
But you know what? It was the best first job ever, because I learned at a young age that I did not want to work for peanuts.
When I looked around at other people who were earning more, I realized that they had skills that were valued in the marketplace.
When I was 16, I got a summer job in a government office as a secretary. They hired me because I could type 84 words per minute (thank you piano lessons). While my school mates were working for minimum wage, I was earning a lot more because I had a skill that was valuable. 💰
Today, I earn very well and I’ve done that by building valuable skills that are in demand in the marketplace.
And so can you.
Start with the job you have now and be grateful for every penny you make. At the same time ask yourself, “What am I learning from this experience? How can I earn more?”
See where that takes you.
When you turn 17, reach out and I’ll teach you all about simple interest, compound interest, and the importance of investing. We’ll also talk about setting up a money management system that helps you achieve your goals.
We’ll also talk about how important it is to open a TFSA account and get investing asap, even with small amounts.
For now, you’re good to go. Good luck and reach out if you have any questions.
I’m here cheering you on all the way!! 🎇
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Omg! This is so amazing! Thank you so much for writing this! I’m going to have a sit down with my daughters this weekend to read this together and implement some of these steps immediately and begin to develop a future plan together. The funniest thing is that I’ll also be implementing some of these steps for myself. Seems I was never taught these “teenage” lessons about money and some of this is also new to me. We pay $30 a month in bank fees and have been loyal customers with several accounts, mortgages and investments with our bank for 25 years!!! Definitely calling my account manager tomorrow!!
That’s why I’m here to learn and grow and and do better going forward and I’m all in!!
Thank you so much again!
P.s. The obscene amount of exclamation points in this note are all justified! Haha. My daughters are going to have completely different (and more incredible) lives because I’ve connected with you! I feel like I need to make you a casserole! 😂
That’s awesome, W! I’m so glad you like the post and that your daughters will benefit from it. Makes me happy to hear that.
And you’re on re: the casserole! I’m definitely in for that!