Teaching teens about money
A guide to money management and personal finance for young people.
Pocket money vs part-time job
Learning the value of money at a young age is critical for developing healthy financial habits as adults. The most effective way to teach teenagers about money is through hands-on experience managing their own finances. By teaching teenagers how to earn and manage a budget, they’ll learn a valuable skill that’ll stay with them throughout their lives.
To help give your teenagers the best possible financial start, we’ve pulled together this handy guide to money management for young people.
How can I teach my teen about money?
Everyone learns differently, so the most effective way to help your child learn about money will depend on their unique learning style, your family life, and existing commitments.
For instance, regular involvement in extracurricular activities, like sports or clubs, may make it challenging for them to take on a part-time job. You may also prefer your teen to concentrate on school or college and only get a part-time job if they have ample spare time.
If spare time is limited, you could offer them a smaller allowance to supplement their income. This would allow them to work fewer hours while still benefiting from earning their own money. Alternatively, you could consider a structured chore list - such as agreeing to spend Sunday mornings completing a set list of chores, in exchange for an allowance.
Another option for self-employed parents could be for your child to provide you with admin support on set days after school or college. This not only enables them to view their allowance as a wage but also gives them a genuine taste of working life.
Whichever path you choose, ensure you keep an open conversation about finances. While we don't want our teens to worry about the household budget or money struggles, they’ll likely benefit in the future from understanding the cost of their extracurriculars, how household bills work, and what it means to save.
For instance, do they understand the 50/30/20 rule? Those who follow this spending-saving approach divide their monthly income with 50% of the funds reserved for needs, 30% for wants, and 20% for savings. Opening up a Young Savers account, or a Pocket Money Saver, will give your teen a place to keep their savings until they reach their goal.
It’s also a good idea to set an example for your teens by following the 50/30/20 rule yourself. For more information about budgeting, check out our beginner's guide to money management.
What are the benefits of giving teenagers pocket money?
Giving your teenager pocket money is an excellent way to teach them financial management. By providing them with a fixed amount of money every week or month, they can learn to prioritise their expenses and budget for their needs, knowing they need to make that amount last until their next "payday."
Having a regular allowance is also good practice for adulthood. It helps teach that you can’t always afford everything you want straight away. If your teen wants to purchase something their allowance won’t cover, it can be a valuable lesson in setting goals and saving over time. Not only will this give them a sense of accomplishment, but they’ll hopefully value their possessions more having saved up for them.
Pocket money also teaches young people the benefits of careful spending and money management, which can reduce the risk of debt in adulthood. When they’re spending their own money, they’ll quickly learn the difference between a ‘want’ and a ‘need’. For example, those expensive trainers a teenager desperately wants may suddenly become less important when they realise they must buy them with their own money!
How much pocket money is appropriate for teens?
The average weekly allowance for teenagers aged 16 to 18 in the UK is reportedly around £14, which amounts to £56 per month. However, the amount of pocket money can vary depending on the parent and the teenager. For more pocket money guidelines, take a look at our guide to financial literacy for children.
It’s important to have an open conversation with your teenager to work out a plan together. Ideally, they would have enough money to cover their expenses such as phone bills, travel costs, socialising with friends and buying necessary items. As a parent, you may want to ensure that your teen has enough money to enjoy themselves, but giving too much money may not be the best approach.
Providing an overly generous allowance could hinder their ability to learn how to save for what they really want. It’s important to understand what their priorities are to determine how much money they need, versus how much they want.
This exercise can benefit both you and your teen by improving your understanding of each other, teaching them valuable negotiation skills, and strengthening your relationship.
What are the disadvantages of pocket money for teens?
Pocket money can be a great tool for teaching teenagers about money management and independence. While there are some disadvantages to consider such as those below, it’s important to note they can be overcome with careful management.
- Unnecessary spending: Since pocket money is usually perceived as 'less valuable' than earned money, teenagers may be more likely to spend it on unnecessary items. If this happens, try not to step in and help as this can be a valuable lesson - if they consistently waste money, they’ll learn the hard way when they can’t afford something they genuinely want. Encouraging them to save part of their pocket money can help instil good saving habits early.
- Comparison with peers: It can be challenging when your teen and their friends receive different amounts of pocket money. If you can't afford to give your teen the same amount as their friends, try not to feel guilty. Having a restricted budget can benefit them, as they'll learn to prioritise ‘wants’ and ‘needs’ while making their money stretch further.
How can a teenager earn money?
Making money as a teenager can be difficult, as options are much more limited than adults. However, there are a few ways that young people can earn their own cash and start to benefit from some financial freedom.
- Chores: Having set responsibilities at home gives your teen not only a ‘wage’, but a taste of what it’s like to complete assigned tasks on a pre-agreed to-do list. The money may be coming out of their parent/guardian’s pocket, but it’s still money they’ve earned.
- Part-time jobs: Legally, children can work from 13-years-old. However, there are strict restrictions on child employment regarding the type of jobs and the hours that teenagers are allowed to work. It’s also important to ensure that any part-time jobs don’t impact a child’s education or extracurricular activities.
- Seasonal jobs: Picking up jobs in the summer or at Christmas can be an excellent way to earn money and gain valuable work experience, without impacting their schoolwork.
- Friends and family: The job market can be a minefield, especially when many teens can’t commit to a set day or time each week. Consider if any family or friends have ad-hoc chores they’d be willing to pay for - for example, washing cars, lawn mowing, spring cleaning or even babysitting.
What are the benefits of part-time jobs for teenagers?
As your child grows up, they could benefit from a job to help pay for their own expenses. This can also be a great experience for them, as they’ll learn the value of hard work and money. They could work full-time during school holidays or part-time during term time.
Depending on the job they get, they can grow as individuals. For instance, a retail job can help them gain confidence, patience, and the ability to work with different people. They could also pick up important skills that prove useful in their future career. If they get the right part-time job, it could become the first work experience on their CV when they enter full-time employment.
However, it's important to remember they’re still teenagers. They need to balance their time between work, studies, rest, friends, hobbies, and having fun. These are their formative years, so they should learn meaningful skills while enjoying their youth.
How can I help my teen financially prepare for adulthood?
As a parent, you want your teen to be well-prepared for the future. Regardless of whether you're providing an allowance or encouraging them to work, it's important to remember they’ll eventually become independent adults. Even if they already have some experience managing their finances, becoming self-sufficient can still be daunting, and it may take some time to get there.
One way you can help your child when they turn 18 is by starting to save for them early on. If you want to support your child when they reach adulthood, consider starting to save for them as early as possible. Even a small amount, such as £10 a month, can accumulate significantly over the years.
For instance, if you open a Junior ISA for your child on their first birthday, by the time they turn 18, they’d have savings of £2,040 (excluding any interest earned!). To boost the amount they'll receive when they're older, you could also ask family members to make contributions to their savings account instead of giving presents during their early years.
If they’ve already been managing their own money, they’ll have developed a sense of financial responsibility by the time they gain access to their savings at 18. This will better equip them to handle a lump sum and be more financially independent.