It’s never too early, or too late, to start teaching your children about finances. Numerous studies have found that parents are the single most influential factor in their children’s financial literacy and future financial behaviors. Investing in your teen’s financial literacy can set them up for a lifetime of success. But without guidance, they’re likely to stumble into common pitfalls. 

Here are some of the most frequent spending mistakes teens make—and how you can help them avoid these missteps.

1. The 100% Consumption Trap

The Mistake: A November 2024 report found that over 67% of Americans are living paycheck to paycheck. Another study found that only 15% of young adults aged 18–27 set aside a portion of their paycheck for savings. Many Americans, especially teens who are new to financial management,  fall into the trap of spending every dollar they earn, whether it comes from allowance, birthday money, or a part-time job. Without a plan in place, they often treat all incoming cash as spendable—leaving nothing for unexpected expenses or long-term goals.

‍How to Prevent It: Introduce the concept of budgeting and saving early. Help your teen divide their money into categories: spending, saving, and sharing. For younger kids, you might use clear jars labeled for each purpose, while older kids can use True Link’s teen debit card to track their money digitally. Setting goals—like saving for a new bike, or a longer-term goal like a car or college —can make saving more tangible and rewarding.

2. Overusing Credit

The Mistake: A recent Federal Reserve of New York report found that over 15% of Gen Z credit card users have a maxed out credit card and more than 10% are delinquent (30 days late on a minimum due payment). When teens first gain access to credit, they often overspend without fully grasping the consequences. Many see credit as borrowing money, but underestimate the steep cost of interest accrual, leading to high balances they can’t afford to pay off. Without proper guidance, this early mismanagement can spiral into long-term financial setbacks, including damaged credit scores and overwhelming debt.

‍How to Prevent It: Make sure they understand important principles behind using credit so they understand the implications every time they swipe. 

• Teach them the 30% rule. Keep credit card utilization under 30% of the max available credit to keep balances manageable and avoid damaging their credit score. 
• Show them examples of how compound interest works. Make the costs of interest more tangible by walking them through a few examples, like how a $100 concert ticket can end up costing over $250 over time. 
• Explain the statement date vs. due date. Encourage payments before the statement date when possible. Even partial early payments can reduce the interest charged, helping them minimize debt if they can’t pay in full every month.  
• Encourage critical thinking. Give them some questions to ask themselves before making a purchase, such as “Do I need this right now? Can I afford to pay it off immediately?”
• Frame the real-world impact of credit scores. Remind them their credit score can affect their ability to get loans and mortgages, rent apartments, get jobs, and make many things more expensive for them.   

3. Theft of Savings or Not Storing Money Safely

The Mistake: Kids may leave their cash in unsafe places—like a backpack or unlocked drawer—making it vulnerable to theft or loss. In some cases, they may even fall victim to online scams or peer pressure to “lend” money to friends who don’t pay it back.

How to Prevent It: Teach your child the importance of securing their money. Encourage them to use a safe place at home or, better yet, open a savings account where their money is protected and earns interest. For digital safety, discuss the importance of strong passwords, recognizing phishing attempts, and never sharing account information with friends. Tools like the True Link card can provide added security, allowing parents to monitor transactions and freeze the card if suspicious activity occurs.

While mistakes are part of the learning process, proactive guidance can help your kids and teens develop smart financial habits early on. By teaching budgeting, responsible credit use, and safe money practices, you’ll empower them to make informed decisions and avoid common financial pitfalls. With the right tools and support, they’ll be on the path to financial independence and success.