What to teach your kid about money and finances as they head off into adulthood

by | Mar 7, 2023

Your kid is going off into the real world and there are some crucial things that they need to do to set themselves up for financial success. Whether they’re starting a career, going to college, or taking a gap year, these steps will help them begin their journey toward creating the magical life of their dreams and taking control of their financial future. 


  1. Get them comfortable with talking about money. Have conversations about money and avoid the conversations sounding like a lecture. Share with them what your parents did or did not teach you and what you wish you had learned at their age and share the mistakes you made earlier in life and what you learned. Reveal your tips, tricks, habits, fears, dreams, and ideas around money. In true teenage fashion, your kids may not want to listen to your sage advice about money. That’s okay. Maybe introduce them to your financial planner, get them some beginner finance books, or listen to a financial podcast together. The goal is to get them talking about finances and know who to go to for help when they don’t want to ask their parents. Also important that they know where isn’t a great place to learn about finances (social media) and who to listen to (make sure they have a CFPⓇ if they are telling you what to do with your money!).


  1. Encourage them to read a book about finance. Get them to get interested in money and finances early on and gain some basics around financial literacy and mindset. Have a monthly finance chat where you have a book club or discuss a podcast episode together. Here are a few books to get them started:


  1. Open a checking and savings account. Make sure your kid has a savings account and help them set up automatic transfers from their checking account to that savings account at least once a month if they are working and earning income. A great option for a savings account is a high-interest savings account. This will earn much more interest than a regular banking account and is perfect for short-term savings needs.


  1. Get a credit card to start building credit. A great option to start building credit is using a secured credit card. A secured credit card requires a cash deposit to use as collateral and insurance on the purchases made. Usually, the card will require at least a $200 cash deposit to start, which would provide a credit line of $200 for your teen to spend. This helps reduce the risk of abusing or overusing a credit card, but still gets the benefit of improving your teen’s credit score. 


Another option is a student credit card. Lots of institutions offer student credit cards that can come with great benefits. Discover, for example, offers cash-back bonuses for good grades and has great reward points. Make sure they set up automatic payments to pay off the entire statement balance before the due date to help them avoid carrying a balance on the credit card. Have them set a low balance starting out ($500) and once they show they can use the limit responsibly, gradually increase the limit. 


  1. Freeze their credit. Unfortunately, credit fraud is rampant these days and your child’s pristine credit may be a target. Once they have secured a credit card, have them freeze their credit at all three bureaus so no new lines of credit can be established under their social security record. When they need to take out a new line of credit somewhere, they will have to unfreeze it at the bureau. Always good to have credit freezes placed 24/7. 
  1. Experian 
  2. Transunion
  3. Equifax


  1. Encourage your teen to start using a budgeting app like Mint or Monarch to help them track expenses. However, it isn’t enough to just track expenses. Your student needs to learn how to plan ahead when it comes to money. Creating a budget should be based on long-term goals, upcoming expenses throughout the year, and still having room for fun opportunities. If your teen is going to college, the college may offer financial counseling for free to help your student create and maintain a budget. Encourage them to take advantage of this service if they can. You can also hire a financial coach for them to work with to set and maintain a budget. This may be the single most important lesson you can help set them up for success. 


  1. Help them understand the importance of an emergency fund. Financial stress is one of the leading causes of students dropping out of college. Having an emergency fund means being able to reduce hours at work during a particularly stressful time of the semester and not having to worry about the timing of their bills getting paid. An emergency fund can also be the cushion they need to take opportunities that might come up. Understanding what their monthly expenses are and keeping 3-6 months in cash at all times is the goal. 


  1. Make sure they seek counseling on their student loans and career path. A general rule of thumb is to never take on more student loans than your entry-level salary position. For example, if you can expect an entry-level job out of college with a $50k salary, you shouldn’t take on student loans greater than $50k. There are a lot of payment methods for federal student loans so make sure you understand the cost of your education post-graduation. Consider a cheaper college/university if tuition will be significantly higher than your first year’s expected salary. 


  1. Consider opening a Roth IRA. Students working 15-20 hours a week while in school can see an increase in GPA and success in college. If your student chooses to work or do paid internships in college and they have earned income, they can start contributing to a Roth IRA account. A huge benefit of a Roth IRA account is that the money can be used for some qualifying events, not just retirement, but the account needs to be open for at least 5 years without facing a penalty for early withdrawals under certain conditions. Get started on their retirement savings early and start the 5-year clock early! Learn more about opening a Roth IRA for your student here.


These steps will help your teen feel more in control of their financial future, experience less financial stress, and improve their confidence. The most important piece of advice for teens and finance is to avoid judging their financial decisions as “good” or “bad”. Instead, offer help when needed and support them on their journey to encourage open communication.