Teenagers and finance are two subjects that people often ignore. Parents and their careers are vital in shaping the money management skills of their children. Most teens end up relying on their parents concerning daily monetary management.
As teenagers begin to reach adulthood, it becomes more difficult to talk to them regarding finances. That’s why you need to do everything you can as early as possible to prepare your kids for personal finance management.
That topic is exactly what we’ll talk about here. So, let’s dive deeper and look at the top money management skills parents should teach their teens today.
Why aren’t the majority of young people responsible with money?
Before we can talk about all the other areas of financial education for teens, we need to first answer this question.
The answer is quite simple.
The bottom line here is simply because they don’t recognize the intrinsic value of the money that they don’t earn themselves. Many teens aren’t accustomed to money not being an unlimited source that comes out of nowhere.
That’s why one of the first things parents should do concerning their child’s financial education is to give them some freedom and responsibility.
Teenagers who have the freedom to fully manage their own money independently are certain to learn a few valuable life lessons along the way. They get to understand more about the fundamentals of money and what it takes to earn it.
A major benefit here is that it helps stop them from spending more than they can afford. This is one of the worst problems that lead to money mismanagement.
Secondly, they get to learn how to prepare for unplanned expenses better. What’s even more important is if they also get to learn how to avoid these in the first place. All of these skills are vital in managing one’s finances.
To effectively teach responsibility in teenagers, parents need to:
For many teens, having a set amount of their own money represents the first step towards a bigger world of personal finances and financial responsibility. That’s why you need to do this as early as you can.
By giving your teenager a fixed but regular amount of money, they’ll learn how to stay within a certain budget. Any silly mistakes or impulse purchases will cost them and no one else.
By following this approach, teens will always be reminded that no more money will come in until the next pocket money schedule.
Teenagers who get money whenever needed won’t be as responsible in managing their finances.
Experts believe that teens who get cash on an ad-hoc basis end up not being good at handling money as they grow up. Conversely, teenagers who are given a fixed amount early on are more aware of the intricacies of financial management later in life.
As you can see, one of the best ways to teach financial responsibility to your teens is to ensure they set a certain budget for a particular need. In other words, you want to give them a set monthly budget for buying things they need for school and the like.
You then end up providing them the agreed sum ahead of time and allowing them to manage it on their own.
Although they may make the mistake of spending their money on frivolous purchases, they’ll end up realizing they won’t be given extra money to make up for it.
Eventually, your teenagers will start to realize how important it is to manage their personal finances better.
Here are some of the most common things teens waste money on that you should be aware of:
Children often copy the actions of their parents in many aspects of life. Sometimes they do it consciously, and sometimes they don’t. The same thing can be said when it comes to financial management.
As parents, you need to show your teenagers how crucial money management skills are by setting a good example. Show them that if they want to buy something, they need to save up for it.
In this way, your children will learn the right way of managing finances by mimicking your behavior.
On the contrary, if you rely on your credit card to buy non-essential things all the time, you can’t expect your teenagers not to follow suit. So, how can you change this?
Whenever you make a good financial decision for the whole household, you should make sure that you inform your teenagers about it as well. In this way, they’ll feel more involved with the financial aspect of the family.
Many people who haven’t been especially good at saving money during their teenage years have found themselves saving money to buy something at one point.
However, such impulsive savings to purchase a new gaming console or a pair of sneakers will most likely not lead to smart money management later.
That is why you need to ensure your teens remember that saving money isn’t temporary but actually a way of life.
In this way, they’ll settle into the simple concept of only purchasing things that they can realistically afford. This simple premise is unfortunately difficult to bring into fruition in many individuals.
Regardless, you have to work on your teens and make sure that they understand this.
You may even end up getting them to chip in to the fund that goes to their college education if you educate them on finance management early on.
You can start by opening up a savings account for future goals and a checking account for day-to-day spending. To get the best balance of independence and supervision, you can set up a teen checking account that gives you joint holder status.
With this setup, you can still gain full access to the account while allowing your teenager to manage and monitor it online or through a smartphone. You can then give them their own debit card associated with the checking account.
Apart from reducing the need to bring cash and having a record of where the money is spent, debit cards have other benefits. They are as convenient as credit cards while allowing parents to keep tabs on their teens’ spending.
If your teen is already allowed to drive, you can start by teaching them about car insurance.
Explain its purpose and the importance of having such coverage at all times.
Review the policy with them, giving special attention to deductibles. This is a concept that’s also helpful when dealing with other types of coverage such as health and homeowners insurance.
You can even tell them that they’ll be responsible for helping pay for any deductibles that are a result of accidents they cause. With that in mind, your teens should hopefully grasp the concept of insurance and be more cautious moving forward.
According to a study, teenagers who take part-time jobs actually get higher grades.
Furthermore, having part-time job records will look good on college applications. It’s also great for teaching teenagers about time management when balancing school and work.
Below are some of the most popular part-time jobs for teenagers:
Once you have given your teenagers their own allowance to cover expenses you normally pay for and they have their own job and checking account, you should now move on to teaching them how to pay bills.
This is one of the top money management skills to learn because many young people grow up not knowing about these things.
Consider showing them a sample budget when they have their own place. This can be good practice to help them understand about electricity, water, rent, and other types of bills that they don’t have right now.
A part of money management should also include how to save up and invest their money. You should teach your teens how to save at least 10% of their money in short-term and long-term savings accounts.
You can even consider teaching them to start with a 401k. Doing so can truly set them ahead of the rest once they decide to move out on their own.
These are a few ways that teenagers can invest:
Credit nowadays is truly something to beware of. Some companies offer credit cards that will charge you more than 50% interest.
Furthermore, credit card companies love to prey on young adults by sending them more than one offer daily once they reach the legal age.
By teaching your teens how credit works, they’ll be able to look past these offers and see that these deals aren’t actually beneficial to them in the long run.
Kids as young as those in elementary school can grasp the basics of comparison shopping.
With that said, you can let your teens see you create a shopping list and look at sales so they can note where certain things cost less.
Take your teenagers grocery shopping with you and show them how you compare brands so you can buy more with your money.
When your teen wants to buy something with their allowance, show them how comparison shopping works so they can get the most for their money.
Teenagers are already used to being graded. From SATs to their report cards, teens know well how numbers are used to represent their responsibility and accomplishments.
The same can be said with a credit score, and although many teens can’t do much about it, you can help lay the foundation for building one into adulthood. Teaching your teens the concept of how credit scores work and the best practices can prepare them when they begin building their own credit history.
Here are some of the main reasons why having a good credit score is important:
Having an excessive level of debt is like the life equivalent of being in handcuffs. A major problem with many young adults today is taking on too many deals, such as:
Most of the time, young people are easily deceived by how easy credit can be to get and the instant gratification of buying something without taking the money out of their own pocket.
Eventually, they will end up paying more for the cost of the items in the long run.
That is why it is important to teach your teens to focus on the cash flow impact of major purchases. You want them to learn how to avoid recurring financial commitments as much as possible.
This may not be one of the main things on their minds right now, but helping teens understand and look forward to saving even a modest amount of money can have a huge impact on their future.
The earlier teenagers can understand that retirement is the largest expense they’ll ever save for, the better off they are going to be. Being teens, they still have time on their side.
The power provided by compound earnings means that they can have more money the earlier they begin saving. If your teen is already earning income, consider opening a Roth IRA.
Giving them a jump start may turn them into a millionaire in the future.
As you may have noticed, educating your teens about personal finances isn’t something you can give them a crash course about. Rather, this has to be a long-term effort on your end, particularly once they transition towards adulthood.
Additionally, talking about these things isn’t enough; you should also set a good example for them. Let your teens see what good personal finances look like in practice.
Teaching your teenagers money management skills early on can help prepare them financially for their own future.