Why Teen Savers Have More Financial Success Later in Life
Here are more steps parents can take to get their teens off to a strong financial start:
1. Get help if you need it.
Lusardi points out that many parents don't consider themselves good with money, and they might not feel that they're equipped to teach financial lessons to their children. That's why she is a strong advocate of teaching personal finance in schools. "It's really important that the more formal learning happens in the school. We should not take the financial literacy of parents as given," she says.
Morgan opted to educate herself through local financial workshops and work with a financial coach to get on the right path after she built up some debt, including medical debt. "My habits are a lot better now. There are little things I can do like taking the bus and not eating out," she says. Her advice to teens facing similar issues is to tamp down spending. "It doesn't matter how hard you work if you let your money fly out the window because you get a latte or jeans," she says.
2. Tailor your financial chats to children's interests and needs.
While giving children a chance to manage some amount of money on their own can help get them in the habit of saving, it's really the conversations about money that impart important lessons. Ward points out that every child has different natural inclinations toward saving, and you might have to guide them accordingly. "Assess how you can set up those good savings habits," she says.
As teenagers take on jobs and earn their own money, then you can talk more explicitly about budgeting and saving, Ward says. She adds that when you start giving kids an allowance, make it clear that they're expected to save some portion of it, so they can start to get in the habit. Other parents choose to emphasize charity and choosing a way to donate, she says.
3. Consider the implicit messages you send, too.
Even if parents don't try to teach their children financial lessons, kids absorb concepts simply by observing their parents' behaviors and the way they talk about money. If you never talk about money, for example, then you're implying that it's not important, Lusardi says. If you discuss budgeting, investments and financial priorities in front of your children, then you'll help pass on your knowledge.
Lusardi's previous research has found a strong connection between parents' level of financial literacy and sophistication and their kids' familiarity with basic financial concepts. A college-educated man with parents who had stocks and retirement savings was significantly more likely (by 45 percentage points) to be familiar with the concept of diversifying investment risk compared to a woman with less than a high school education and parents who were not wealthy.
In other words, financial literacy often begins forming even well before the teenage years, which means parents, and schools, have a big role to play.