Managing money is not something that comes naturally; it’s a skill learned through observation and hands-on experience. As parents, you have a significant influence on your teen’s financial behaviour, and how you talk about money and make decisions with it sends powerful messages. However, merely watching you make good choices isn’t enough. Teens crave responsibility and want to be involved in their own financial journey. By introducing purposeful discussions and expectations about money, you can equip your teen with the knowledge and experience they need to protect their finances and avoid costly mistakes as they transition into adulthood. Here are seven hands-on ways you can help your teen get started on the path to financial success:
1. Foster Honest Conversations about Money and Personal Finance
Money is often treated as a taboo subject, but it’s essential to address it head-on with your teen. Initiate conversations about money, savings, and retirement both in everyday settings and during formal family meetings. Be transparent about your own financial experiences, sharing both successes and mistakes from your past. Discuss topics relevant to their current lives, such as paying for college, and if you have college savings for them, explain the details. Remain neutral in your discussions, ensuring your teen doesn’t feel awkward or embarrassed about money matters.
2. Instill the Value of Saving
Teach your teen the concept of saving money and its importance in preparing for various financial needs, from special purchases to college, retirement, and emergencies. Develop a budget together, emphasizing the value of frugality and prioritizing needs over wants. Encourage your teen to save at least 10% of what they earn and aim to have three months’ worth of living expenses saved up for emergencies. Show them that being in control of their money and choices empowers them to make sound financial decisions.
3. Help Them Handle Earnings from a Job
Encourage your teen to get a part-time job that allows them to earn money for their expenses. Discuss and agree on how they should use their pay – whether it’s to contribute to car insurance, clothing expenses, college savings, or other financial goals. Introduce the concept of paying themselves first by encouraging them to deposit a portion of their paycheck into a savings account before spending the rest. Help them schedule their responsibilities effectively, considering school, clubs, sports, and other commitments, to develop critical time management skills.
4. Guide Them in Opening a Bank Account
Having a bank account empowers teens to manage their money independently while still receiving guidance from their parents. Opt for a federally insured financial institution that offers online and mobile access for convenient balance checking. If your teen is earning a paycheck, direct deposit can be a useful option. This not only provides valuable real-world experiences but also fosters important conversations about finance, spending, saving, and interest accrual.
5. Teach Them How to Create a Budget
Developing a spending plan or budget will teach your teen accountability for their finances. Have them list out all sources of regular income and brainstorm a list of regular expenses. Subtracting their expenses from their income will reveal whether they have enough money to cover their needs. If there’s a shortfall, help them come up with a plan to address it, either by earning more or cutting back on expenses. Encourage your teen to think through spending decisions and show them how to categorize expenses as needs and wants.
6. Educate Them about Credit Cards
Even if your teen isn’t getting a credit card until college or later, it’s crucial for them to understand how they work. Good credit card habits, such as spending within one’s means and paying balances on time, pave the way for future major purchases and life moments. Consider introducing secured credit cards or adding them as an authorized user on your account to help build credit with lower risk.
7. Introduce Investing Basics
While savings accounts are necessary, savvy savers know that the return on investment is minimal. Teach your teen the basics of investing to set them up for financial success. Open an investment account for them or explore micro-investing apps that use the round-up method to make investing easy and approachable. Calculate potential growth over the years to show them the long-term benefits of investing.
Final Thoughts
By following these hands-on approaches, you can empower your teen to make informed financial decisions, develop good money habits, and face the challenges of adulthood with confidence. Preparing them now will set them on a path towards a secure financial future.