5 Money Mistakes Every Teen Makes (and How to Fix Them)
Influencer-induced overspending, blowing their budgets on impulse buys, poorly researched student loans: When it comes to personal finance, there are plenty of ways for teenagers to stumble. Here are the steps you can take to steady them.
1. Losing Track of Their Spending
“The most common money mistake I see teens make is not tracking their spending,” says Monica Eaton, a certified financial education instructor, commercial banker and author of the children’s book, Money Plan. “Unlike cash, which you can easily see dwindle away with each purchase, debit cards, credit cards and digital payments make it easy to lose track of how much money is being spent. Teens are often surprised to find they’ve run out of money much sooner than expected.” So, should your teen go cash only? That’s one option. Another is helping them get a student-friendly credit card or adding them to yours as an authorized user. Not only does this help them build good credit, but it also provides an opportunity for them to learn (alongside you) how to read statements and the importance of paying their balance in full each month. Make it a weekly ritual to check your child’s account balance together and budget out the next week accordingly.
2. Living Beyond Their Means
Fun opportunities come up for teens, like, all the time. Road trip! Music festival! Essential new party look. But fun costs money. And it’s almost too easy to blow your budget on emotionally driven impulse buys. What’s the best defense against over-spending? A good offense. “Build a budget and have a plan for how you’re going to use your money before you spend,” says Eaton. If your kid is more of a big picture thinker, try a “three bucket system” wherein an equal portion of his income (whether it’s from an after school or summer job, birthday gifts or an allowance) gets allocated into spending, saving and giving. If he’s more detail-oriented, get granular. Help him write up a detailed budget with line items for every essential need (school supplies, cell phone) as well as wants (dinners out, video games). “Spending more than you earn can lead to unnecessary money emergencies and debt,” warns Eaton. Remember: A budget only works if you stick to it.
3. Spending Every Dollar that Comes In
Teens are all about instant gratification. But “easy come, easy go” is not the way to financial wellness. Eaton always tells teens: “Pay yourself first. When you get money in from any source, save a portion of it before deciding how to spend the rest. Savings can fund lifestyle goals like buying a car or paying for a graduation trip. Savings can also give you peace of mind in the event of a true money emergency. Get in the habit of saving a portion of any money you bring in.” Consider setting them up on an autosave app or Fidelity Youth investment account. You could also offer a financial incentive to put money away (like matching every dollar she deposits into her money market account). The teenager who routinely saves for college becomes the adult who routinely saves for retirement.
4. Dismissing Affordable Colleges
Finance expert Suze Orman writes about the concept of a “financial safety school” like a state college, community college or university that would gladly offer your high schooler a generous scholarship based on academic merit. By all means, encourage your teen to aim for any prestigious private university her heart desires. But applying to an affordable backup school as well just makes sense. When it comes to student loans, experts recommend federal options like Stafford loans as opposed to private ones. And be sure to stay up—together—on loan forgiveness news.
5. Keeping Up with the Influencers
Although following money gurus online is fun, social media can also be detrimental to kids’ financial health. Eaton advises teens to try to “resist outside influences,” whether that’s avoiding envying a friend’s shopping haul, a classmate’s tropical vacation reel or a celebrity’s pricey skincare endorsement. “We’re constantly receiving messaging on how to spend our money from peers, society and advertisers. Make sure that your spending is in line with your personal goals and resist the urge to match the spending habits of other people.” Applaud your teen anytime she keeps her eyes on the prize—paying for a car in high school, graduating college debt-free—instead of an influencer’s feed.