What High Schoolers Should Know About Money

How parents and teachers can get teenagers ready to manage their own cash.

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Between SATs and prom, high schoolers might have enough on their plates, but here’s one more item for their to-do lists: Learn about money. That’s because those last four years at home offer one last chance to pick up financial lessons while still living with a parental safety net.

[In Pictures: 10 Smart Ways to Improve Your Budget.]

A new survey from Higher One, which provides bank services to college and universities, shows that parents aren’t doing such a good job of preparing their teens to grow up financially. Most students failed a nine-part quiz designed to test basic financial knowledge. Questions focused on the practical applications of personal finance, including when you should tap into emergency funds, how large a cushion advisors recommend you have, and what to do if you have too many credit cards. (See: Quiz: Are You Smarter Than a 12th Grader?)

This news comes at a time when 20-somethings appear to be doing a better job managing their money, perhaps inspired by the recent recession. A survey by the online brokerage firm Scottrade found that the recession inspired 20-somethings to educate themselves about how the economy works as well as to learn more about their own personal financial situations. That apparent generation gap between those who experienced the financial crisis in the real world versus those who watched it unfold as teenagers suggests that parents and teachers could do a better job of getting high schoolers ready to deal with money when they grow up.

But it’s not entirely clear how they can best do that. In fact, research suggests that high school personal-finance classes don’t leave a lasting impact. Parents might have more influence over establishing money habits and attitudes, but even then, the “best” approach isn’t entirely obvious.

Paying children an allowance or to do chores can do more harm than good, according to Lewis Mandell, a professor of finance at the University of Washington who recently studied more than 50 years' worth of allowance research. "The kids who receive [a regular, unconditional] allowance tend to think far less about money in general." In fact, he adds, those children appear more likely to grow up to be "slackers," since they aren't learning to associate work with money.

So what should high schoolers learn, and when should they learn it? The basics—as told through the things they care about most—are a great place to start.

Saving for a big reward. Every teenager has some big purchase they lust after, whether it’s an iPad or a car. That provides the perfect motivator for some practice with bank accounts. Teens can funnel income from an allowance or part-time job into an account, earn a small amount of interest, and then finally make the purchase. They’ll probably never forget the feeling.

Avoiding debt, accidental purchases, and other money catastrophes. Spending $200 on text messages, ordering pricey smartphone apps, and going on a shopping spree on mom’s credit card are just a few of the money mistakes that can happen to teens. They also make for ideal “teachable moments,” if parents can calm down enough to talk about what happened and how to avoid such expensive errors in the future.

Technology can assist parents with this lesson. Connie Prater (@Connie_P), a single mom and personal finance writer for creditcards.com, helped her teenage daughter set up a debit card that sends her daily texts updating her on the remaining balance. She can also use a smartphone to comparison shop and check reviews before making any big purchases. “We didn’t have that back in the day,” Prater says.

[See 12 Money Mistakes Almost Everyone Makes.]

Forgetting about ‘keeping up with the Joneses on Facebook. Social networking sites make it easy—too easy—to compare your own wardrobe, gadgets, and other material goods with those of friends. That makes high school the perfect time to learn to clamp down on jealousy-inspired purchases, because that kind of shopping spree never ends.

Realizing that parents know stuff, too. Sure, teens aren’t usually clamoring to get their parents’ advice, and a lot of parents themselves feel awkward talking to their kids about money, but maybe there’s a way to find some common ground. Parents willing to share their own money challenges and mistakes could find the conversation mutually useful—and even enjoyable. (See 8 Easy Ways to Teach Your Kids About Money.)

Here’s some extra motivation for parents still on the fence about trying to impart money lessons to their teens: It could save your own retirement funds later. That’s because parents today often help their adult children so much that they do damage to their own financial well-being. A Pew Research Center study released earlier this year found that 36 percent of Millennials receive money from their parents or other family members. One Ameriprise Financial survey found that almost 1 in 3 parents in their 50s and 60s often give so much money to their adult children that it eats into their own retirement savings, but most don’t even realize it.

It’s almost enough to make you long for the days when prom and SATs were your biggest problems.

Kimberly Palmer (@alphaconsumer) is the author of the new book Generation Earn: The Young Professional's Guide to Spending, Investing, and Giving Back.