As your teen prepares for the opportunities and challenges of adulthood, a good understanding of money management is essential. Teaching your teens about money now provides a solid foundation for the future.
A fluctuating economy is challenging for even the most experienced financial planners. Teens may have a similar uncertainty as they enter adulthood. Teaching teens about money now lets them learn some valuable lessons they can use for their futures. Here are eight tips for teaching your teens about money.
1. Identify Priorities and Goals
Finding balance between enjoying the moment and preparing for the future is a healthy practice for anyone. Before you discuss money management, learn about your teen’s current priorities and goals for the next few years – and beyond. Keep an open mind so your teen feels comfortable sharing their ideas. Only add your ideas as suggestions based on your own experiences. Once they have a list of priorities and goals, work together to develop a plan for achieving and managing them. Use the opportunity to explain how money management is an important part of reaching those goals while still enjoying the life of a teenager. They are going to make mistakes early in the process – but that’s ok. Small mistakes now can help them learn how to avoid and/or fix issues in the future when you may not be around to be their safety net.
2. Start with a Budget
Budgeting is a skill that takes time to master. Even when you have all of your income and expenses scheduled, the unexpected always happens. This is where most adults start to encounter unmanageable debt. Even if your teen only has a small amount of income from a part-time job or allowance, budgeting is a good place to start with personal finance for teens. Set up a budget using a spreadsheet, worksheet, or budgeting app. Let your teen decide where to allocate income.
Ask your teen to follow the budget for one month. After that month, sit down together to review the budget and make adjustments. This helps your teen see the challenges of setting up and following a budget, as well as how to include extra money for unplanned expenses. The goal should be to find a balance between responsible spending and enjoyment of life. Neither should be completely sacrificed for the other. Keep adjusting and reviewing the budget until your teen is able to comfortably follow the plan for a month or two.
3. Open Bank Accounts With Your Teen
Once your teen has their budget plan, help them set up an account for checking and savings to better track income and expenses. Be sure your teen understands the associated fees and interest rates, including charges for overdrafts. Taking this step expands accountability for teens because they are now working directly with a banking institution.
4. Learn About Credit Scores
Credit scores can be a difficult concept for a teen to understand. Leverage the resources available from the credit agencies to introduce the topic and how it works. This can help your teen better interpret the value in responsibly managing their spending and credit. Just as grades in their classes determine the successful completion of their education, credit scores can determine potential success in life purchasing a home, a vehicle, and even getting the job they may want.
