The teen years are the perfect time to take on more financial responsibility and learn the fundamentals of personal finance. The financial risk is usually small, like a ticket to the movies. And, parents are still able to teach larger lessons while guiding financial decisions.

Ready to to help your teen grow into an independent, financially well-informed adult? It’s easy to get started.

Five Steps to Teach Your Teen Personal Finance

1. Talk openly and honestly about money as situations occur.

Kids can learn a great deal about the importance of money from real life situations.

Growing up, I would often hear “money doesn’t grow on trees.” And while I was frustrated by that answer, especially when I really wanted new roller blades, I realize now that it helped me understand the big financial picture in the family. And, that things just don’t appear, because I want them.

So, the next time your teen asks for something you can’t afford, take the time to talk about needs versus wants. And, help them understand the overall family budget.

2. Encourage your children to budget their money.

Whether your teen is working part-time or receives an allowance, establish the importance of a monthly budget with them.

Experts recommend teens use the 30/30/40 rule. Spend 30% on Needs, 30% on Wants, and Save 40%. This is a starting point – you can go much deeper with things like spending categories, expense tracking, and long-term planning.

3. Teach financial goal-setting and delayed gratification.

Once their budget is created, you can help your teen set financial goals. For example, if they want a new laptop, work with them to develop a savings plan. They could start setting aside a certain amount each month. Or, they could put aside a certain percentage of each paycheck. They could also use monetary gifts they receive for that big ticket item.

4. Teach them the concept of “opportunity cost.”

When teens start receiving a regular paycheck, they might be quick to spend it on luxury items, like a trendy wardrobe. However, it’s important to point out the bigger opportunities they have with their spending power.

You can ask them reflective questions like “Would you rather spend that $100 on a pair of shoes or put it towards a new smartwatch?” Having them think about their choices, though it may seem minor, will impact on how they spend their money in the future.

Opportunity cost also applies to time.

For example, if they’re in college and go to see a movie with friends instead of going to class, they spent their time on entertainment instead of valuable education. In this case it’s a triple whammy – they also lost the cost of that class while spending money on the movie.

5. Have the credit card conversation.

Sometimes it seems like credit cards rule the world. Just one simple swipe and you can have any product at your fingertips. While balancing a checkbook might seem outdated, teens should still use one so they are aware of the money in their bank account that has already been spent on credit card purchases. Talking about credit cards is also a great opportunity to teach them about interest and the impact of minimum payments.