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Giving money to teenage children might sound simple, but it can quickly become complicated. Parents often want to set limits on how much their teens can spend, teach them about money management and protect them from fraud, all at the same time.
“It’s about knowing your kids and tailoring the approach a little bit to the child,” says Amy Spalding, a certified financial planner at District Capital Management, a Washington, D.C.-based firm. Some kids need more active help to stay organized and learn how to stay within a budget, while others need to be encouraged to practice spending in the real world.
Here are some strategies to consider when providing money to your teenager:
Start with cash
When children are using money on their own for the first time, sticking with cash can be the easiest way for them to learn how to manage it, says Dan Tobias, a CFP and founder of Passport Wealth Management in Cornelius, North Carolina. “First, get them to understand and appreciate money with paper. Then, when you need to, you can switch to electronic methods,” he says.
That’s the approach he uses for his own three children. He gives them a cash allowance and lets them decide how to spend it, which includes letting them make mistakes.
“Don’t be afraid to let them fail,” Tobias says. Kids might lose a $20 bill, splurge on something that breaks the next day or, in his case, buy a fish and a tank that they soon don’t want anymore. Those mistakes are critical teaching moments, he says, so it’s important parents don’t micromanage their kids’ spending.
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Leverage familiar apps
Once children start earning and spending their own money without you nearby, digital payments become more appealing. You can use methods you and your kids may already know, like Apple Wallet, Venmo or other apps already connected to your phone. They are often connected to a parent's credit card or checking account, unless a child already has their own.
Sarah Behr, a financial planner and owner of Simplify Financial in San Francisco, says apps can be helpful because a parent can closely monitor a child’s spending and “keep the guardrails up” while still giving them the freedom to make their own spending decisions.
If a teen overspends without permission, that can lead to a helpful conversation about budgeting. At the same time, parents can find ways to make sure their own accounts are protected, by using the apps to set spending limits or creating separate accounts with low balances and low credit limits.
Spalding turned to digital payment apps when her teenagers started spending money on their own. She set up a separate bank account with a low balance to limit the potential damage if the account was compromised or a teen overspent.
» MORE: Kimberly Palmer shares how she gives money to her teenage daughter.
Try paid products for more support
Debit cards and apps designed for kids like Greenlight, GoHenry and BusyKid offer additional support for families, such as allowing them to actively manage a budget and chores, but they often come with a fee.
Greenlight, which costs between $5.99 and $14.98 a month, offers parental controls, the ability to assign chores and allowance automation, among other features. “Kids can understand the bigger picture of money management” and also set savings goals for themselves, says Jennifer Seitz, director of education at Greenlight.
Gregg Murset, a CFP and CEO of BusyKid, a debit card and chore app for kids, says the app helps parents teach kids important lessons about tracking money, investing and giving to charity. “That’s what we do as adults — save, invest and share — so we are modeling reality,” he says, adding that kids ages five through 17 can use the app, which costs $4 a month.
Encourage savings
Regardless of the method you choose, saving money should be part of the conversation with your kids, Spalding suggests. When her children were young teenagers, she took them to a local bank to set up a savings account so they could deposit money they had accumulated from babysitting jobs and gifts. She says you could also use an online high-yield savings account to see the money compound more quickly.
Investing in a Roth IRA can be a smart next step for children earning their own money. Behr offered her daughter a savings match up to the amount she contributed to encourage her to save more for the future. “I’m hoping the discipline of this exercise in delayed gratification sinks in,” she says. Teens can save up to the amount of their earned income with a limit of $7,000 for 2024.
With that kind of practice, saving for the future might even become a lifelong habit.
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