As a parent, you may or may not look forward to the teen years. While some teens coast through these formative years, others might hit a few bumps in the road, making it one heck of a ride. Either way, your goal is to help your teen become a well-rounded young adult; one who is financially savvy and understands the importance of earning and saving money. Below, we’ve put together a cheat sheet to help you teach your teen some of the best ways to make and save their hard-earned dollars. Read on to learn some of the most important money matters you need to talk about with your teenager.
Let’s Talk Personal Finances
Your child is just starting to gain independence. They might have started a part-time job and are thinking about which college they want to attend. You’re the one person they need to show them the ropes of how to make it in the world, especially when it comes to money. It all starts with budgeting. If they already have a bank of their own, then sit down and help them create a budget. Talk about how much they earn (if they have a job) and how much they should be saving each month. If they aren’t working just yet and are only doing chores around the house and get an allowance, that still counts. Show them how to divide needs and wants, and decide how much they can save by making better financial decisions.
If they’re almost out of high school, paying for college needs to be discussed. Even if you’ve been saving since they were little, it might not be enough. Talk about the different options they have, like getting a scholarship or student loans. There are Earnest student loans that can cover the cost of tuition without exorbitant interest rates. The terms are also flexible and loans are personalized to theirs, and possibly your, financial situation. Keep in mind that everyone’s needs are different, so it’s best to weigh the pros and cons of taking out any type of loan prior to applying.
Earning Money
If they’re old enough to get a job, they need to understand the different deductions taken from their check and how to file taxes. If they’re only working part-time, then they might not owe income tax. However, if they decide to work full-time during the summer, that’s where things change. Even if they get a W-2, they still need to create a savings account and put money away for possible tax debt. Go over the different types of deductions and explain how exemptions work as well. Since tax laws can change periodically, it’s best to research prior to giving any advice.
Opening Bank Accounts
If you open an account when they were born, then you have two options. A custodial account can usually be converted into a regular checking or savings, or you can simply sign off it. However, it’s important that your child is financially responsible and understands how withdrawals can cause overdrafts prior to giving them free reign. In either case, go over the different types of accounts they have or can open, and explain how to use them properly. If there’s a minimum monthly deposit amount or service fee, review how that must be fulfilled. If they do work, they can set up direct deposit and avoid having to go to the bank.
Mad Money and Saving
When you were younger, you probably couldn’t wait to spend your first paycheck. After all, you worked hard and finally had money of your own. Unfortunately, you probably did what most do and spent every cent without thinking. While doing this once isn’t that big of a deal, making it a habit is. Teenagers, especially ones who are headed off to college, need to learn how to save. Habits they develop now will follow them into adulthood. If they continually blow through their paychecks without repercussions, how will they ever learn financial responsibility?
Together, have them create a list of monthly expenses, like their cell phone bill or gas, in addition to a set amount they need to save. If they’re saving to buy a car, that amount needs to be separate from their actual savings account. Also, remember to teach them how to reconcile their accounts, how to accurately track how much they spent and how to account for pending transactions.
Set Long-Term Goals
Aside from paying for college or getting a new car, you also need to talk about long-term goals. These goals should be more along the lines of buying a home or having a set amount of money in the bank by a certain age. One way to help your teenager be successful is with money management apps. There are plenty to choose from online. Some round up to the nearest dollar while others help track spending and send alerts when accounts reach a specific balance. There is also beginner invest apps they can use to learn the basics of investing. Since they’re so young, they have the time to start small and eventually watch their money grow.
Start Building Credit
Starter credit cards are a great way to build credit and teach financial responsibility. In addition to opening with your child, they can sign up for a secured card. They add a certain amount of their own money onto the card prior to use. Over time, and with a positive payment history, the lender will then convert the secured card into an unsecured one. Their goal should be paying off their balance in full every month.
Education is Key
Ongoing financial education is the key to proper money management. Talk about debt management, how to live with less and the best ways to avoid high interest rates on credit cards. You should have a serious conversation about what they need to do if they overdraw their bank account or can’t make a car or credit payment. They can also use a debt calculator, which will show how long it takes to realistically pay off their debt.
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