Our latest guest expert article is by Rachael, who’s a chartered accountant and mum to a 17 year old. Here are her top tips for teaching teens about managing money and financial admin.
When should you start to teach your teens about finances?
We all know that for many teens (and pre-teens) money disappears out of their hands as fast as sand through a colander. So what can we do to help them become a bit more financially aware and help them learn how to manage their money?
Although there is some financial education within schools, it’s still relatively limited, and we shouldn’t be relying on this to teach our teens how to manage their money. However, money matters are not always a comfortable topic of conversation – especially for those households where perhaps money is tight, making ends meet each month is a struggle or where there is debt and feelings of money shame. However, the aim is to educate the next generation so that they have support and feel comfortable speaking to those that they trust for guidance, and know where to go for help too.
Teaching teens about money needs to start before they get to the age of being teens! And this can start with pocket money.
There is no right or wrong age for when to give children pocket money and no right or wrong amount. However, regardless of age, it’s helpful to make pocket money something that is earned rather than just given because it’s expected or because their friends receive it. By this I mean that you can link it to tasks they need to do, for example:
- Make their bed
- Help tidy up after dinner
- Emptying bins
- Putting loo roll into the bathroom cupboard etc
There are lots of lists of age-appropriate tasks online if you have a look. You know your own child, as to what they can do and what you would like them to do. This can of course make pocket money unlimited, which can be costly if they are super-keen. Generally, though, the novelty wears off and you can always cap it with a maximum that they can earn. As they get older, some tasks move off the list because they become expected as part of the household to pull their weight rather than have an opportunity to earn cash.
Think about how you pay them and how often you pay them their pocket money – when they are smaller, weekly pocket money in cash is a good way to start. There’s nothing better than holding the cash they have earned and then going to buy a magazine with plastic tat on and some sweets!
But as they get older you can pay the cash directly into their bank account and they can have their own bank card. This encourages them to keep track of the cash that they have. They can’t spend it if it’s not there and there’s the bonus of you not needing to scrabble around for change each week. As they get older, transition to paying pocket money monthly at the end of each month, as this is how they will get paid when they start work. There are several bank accounts for children where you can set tasks and then tick them off as they are done and they get paid, but be aware of the fees for these accounts.
With banking apps it’s really easy for teens to keep track of their cash and see what is what, so encourage them to look each week and to check that the transactions are correct and there’s nothing that they don’t recognise. Hopefully they won’t encounter financial fraud but it is a reality that they need to be aware of. Many apps will also categorise expenditure so they can see where they are spending their money.
We need to encourage our teens to save – we can’t expect them to want to save ready for a car or house, that’s just not going to happen. But there will be items that they want they can save for. Getting them to put aside a set percentage of their pocket money is often a good way to start, so that they can see the balance grow. It can hopefully build that saving habit whilst they are young and this will then continue once they get that first part time job.
An important lesson for children to learn as they move into the pre-teen and teen years is the difference between need and want. This is one way to encourage them to save up, there will be things that they need:
- School uniform
- School supplies
- A base level of clothing
- A base level of footwear etc
But depending on your household circumstances, other items will fall into the “want” category, rather than need:
- The latest computer games
- Make up
- Additional clothing etc
These may go onto birthday and Christmas present lists, but they can also be saved up for.
Talking about money
Being open about money in your own house is important. We should share how we budget and plan within our own households, be that using a spreadsheet or an app. If you don’t do this then there is an opportunity to look at starting this and learning together too. Chat about how times have changed – house prices have risen by so much that getting on the housing ladder is so much harder (we had a 100% mortgage for example). Along with rising costs of living, this means that times are tougher for them and for many right now. Acknowledging that they won’t necessarily be able to do what we did is important so that they know it’s not expected of them – the majority of people won’t be able to help their kids get onto the housing ladder, after all.
Debt needs to be discussed:
- Buy now, pay later options (ie Klarna, Clearpay etc) and how although these are “easy”, if they miss repayments this can potentially cause issues down the line
- Credit cards
- Finance agreements for household items (some of the interest rate percentages are huge!)
- Payday loans – it’s very easy to get caught in a debt trap and knowing what to look out for is important
Letting them know that they can talk to you about any financial worries is important too.
How to budget
Understanding how to budget is so important if your teen is thinking of going to uni. There are so many costs to think of – accommodation, course materials, food, phone, transport, and of course going out and having fun (a crucial part of uni life, after all). I was at uni before tuition fees and when student grants still existed (yes, showing my age!) but we know that our kids will come out of uni with tons of debt, so knowing how to budget for food, going out, course essentials etc is important.
Sitting down and saying, “This is what your accommodation costs a week. We spend this much on food as a household for the week, so that is £x per person, but if you shopped differently you should be able to spend £y a week instead. And this is what you will get in terms of cash from us and cash from loans which is £z a week’ can help them see what is what and how they need to then plan.
But remember, they are teens and they will mess it up – it’s important that they can come to you and say “I messed up and need some help…” otherwise debt can spiral out of control.
As teens enter the world of employment, it is important that they understand and know their rights – including what they are legally entitled to be earning (https://www.gov.uk/national-minimum-wage-rates) and that these rates legally have to increase on the day that they hit the next age bracket. There are several big name employers now who have signed up to the living wage foundation and will pay all employees the living wage as a minimum, which is roughly double the minimum wage for a 16 year old. If your teen can get a foot in the door with one of these employers, it can make a massive difference, not only to their earnings but also their ability to save compared to some of their peers.
More information for teens
Although they will cover some bits in school there are varying options of courses externally too:
The Open University has a free course in partnership with Martin Lewis. This is for anyone wanting to learn about money:
Young Enterprise has a downloadable text book for 14-16 year olds to help them:
And moneyhelper.org has a budgeting tool which you can use for your household, or encourage your teen to use for their own finances too:
Thank you so much, Rachael!
As well as being a Chartered Accountant and running Simplified Accounting Limited, Rachael is also the Mum of a 17 year old.
Simplified Accounting Limited helps mainly female led businesses understand the numbers in their businesses so that they can make informed, timely decisions about their businesses, plus all the usual accounts and tax support that they need. You can find their website here: www.simplified-accounting.co.uk and their Instagram account here: www.instagram.com/Simplified_Accounting
As a Mum, Rachael is part of the parental taxi service to and from college (why do the buses never tie in?!) and makes encouraging noises about music, music production and snowboarding when in fact most of it goes straight over her head!