When it comes to money, a lot of teens simply are unaware of how much their expenses impact their income. So they are left unprepared when leaving for college or heading out on their own. Many teens go through financial struggles that could have been avoided if they learned early on how to manage their money.
Teaching teens the importance of money management in the early years helps them prepare for any financial situation when they are out on their own. Discuss the following topics with your teens so they can develop good financial habits.
Their Needs vs. Their Wants
Teens will be quick to claim that they need a lot of things in their lives. So you'll have to establish a baseline between what they really need and what they desire or want. Use common things around the house or in stores while shopping to help them figure out what is really important to get for their daily lives.
For example, talk with them about the $200 shoes that they want. They will try to argue that they need the new pair. Yet if they already have three good pairs available and the new shoes cost more than their paycheck, then you have to show them that it is better to save their money for other things.
It is also important to note all the little expenses you may currently pay for that they take for granted. For example, their mobile phone bill, Netflix, Spotify, Hulu, and other subscription services. While you may not make them pay for all these items now, it’s important they understand just how much all these items cost as a whole.
Help Create a Budget
Learning how to balance a budget is another important lesson in money management for teens. Sit them down and have them write out how much income they make from a part-time job and allowance. Then they can list their one-time and reoccurring expenses. Your teen can gain a better understanding about their cash flow, and determine places where they may need to cut back on their expenses so that
they can start to save their earnings.
Open Checking/Savings Accounts
To learn how to manage their money, teens should start out with having a savings account as well as a checking account with a debit card (Note: A parent will typically have to be a co-signer on the account if the teenager is under 18 years and has a debit card). With a checking account, they will be able to make both in-store purchases and mobile/online purchases.
With their checking and savings account, you can help them check out their account statements and learn how to set aside some savings each month while still having enough to pay their expenses. They can develop good money habits by learning to pay certain reoccurring bills on time every month before stated due dates.
Teach Them Good Debt vs. Bad Debt
With the number of television commercials and social media ads concerning debt problems, most teens will think that all debt is bad. Yet they should also know the types of good debt that can help build a good credit history and will be an asset to them later on in life. Teach them how to recognize good debts, such as:
- Home mortgages with low interest rates and good payment terms to build equity
- Personal loans used to make home renovations, consolidate debt, or start a business
- Student loans to earn degrees and obtain future careers
- Vehicle loans for transportation purposes
Also teach them about bad debts. Bad debts can come in the form of credit card debt spent on luxuries and high-interest personal / payday loans used on consumer goods such as big ticket electronics.
A teen that develops good money management habits now will be better prepared for the financialsituations that they will encounter in college and when they move out of the house. Make sure to cover the above topics with your teens. Even if they should stumble with their finances, they will be able to learn and recover quickly at this young age to become better budget planners throughout their adult lives.
Each individual’s financial situation is unique and readers are encouraged to contact the Credit Union when seeking financial advice on the products and services discussed. This article is for educational purposes only; the authors assume no legal responsibility for the completeness or accuracy of the contents