In order for teens to have full ownership of their financial future, they will need some important money management lessons. Parents have a tremendous influence and can help their teens' financial literacy improve today.
You may begin by pointing out that we all need to be educated when making money decisions and planning our personal finances. Teaching your teen before they leave the nest will help provide them with a valuable foundation.
Here are some important lessons to consider:
Budgeting - Calculate what is spent on their clothing, entertainment and phone bill. Then negotiate an amount for chores or services they will provide to the family in exchange for monies used in their budget plan. This new cash flow should become their responsibility and used to fund their newly established budget. When funds are gone, resist the urge to offer more. Having them learn cash is not infinite will avoid this lesson in the future when the implications may cause serious problems.
Setting Up A Checking Account or Debit Card - Include them when researching the banks offering low fees or no fees; this is a lesson in itself. Many banking institutions now offer savings and checking accounts customized for young adults. Some provide opportunities for parental monitoring and tools for education. Do your research carefully and find what's right for you and your teen.
Frugal Purchases - This provides hands on budgeting lessons. Give them a research project when planning the next large family expenditure. Whether it's a new phone plan or a family vacation, have them find the best deals.
Earnings & Savings - Once they have a job, teach them how to set some earnings aside for savings deposits. Educate them on how interest earned on their savings can accumulate. Help them understand that by avoiding unnecessary purchases or purchasing items on sale they will have more money in their pocket and for savings.
Healthy Credit Card Usage - Explain how borrowing money compounds when it goes unpaid, costing you more than the original amount borrowed. Illustrate how long it would take to pay off your bill if you only paid the minimum balance each month as compared to paying in full at the time of purchase. Also point out how this is used to grade your credit rating.
College Financing - Let them help research the cost of a college education and the options to fund this endeavor. Then discuss what their financial contributions will be during their college years. Working a part-time job for their personal spending money helps continue the lessons of financial independence. Also a small loan in their name may help them form self-respect and the willingness to strive for excellence during their college years. We get higher returns in life when we have higher investments.
Guiding your teen through these lessons now may allow for healthy spending habits in their future.