Teenage years may be the first time children begin to earn their own money, and good habits established now can pay off in the future. Parents often hesitate to discuss money with their teenagers, worrying that they would either reveal the family’s finances to friends or that children may be confused and overwhelmed by the subject. That is a perception that has to be corrected.
Today’s children are quick learners. It is wise for parents to establish money values in their teenagers rather than simply handing them money to buy things. These principles will serve them well when they become adults and begin managing their finances. Here is how to prepare your teenager to become financially savvy.
Table of Contents
Experts advise educating teenagers on managing their money before they start working and the risks become bigger. Set up a budget that details the money coming in and how much is assigned for savings and expenditures. To demonstrate this, you can show how you go about your budgets. However, you can design a fictional salary and living expenditures scenario if you don’t feel comfortable disclosing your personal finances as a parent. Teaching your teenager how to budget will be beneficial as they become responsible for part of their living and understand the value of money.
Debt is an inevitable aspect of maturity, but parents should teach teenagers to differentiate between “good debt” and “bad debt.” Money borrowed at a low-interest rate that helps you build wealth over time, such as a mortgage or a school loan, is considered good debt. In comparison, consumer debt with a high-interest rate is bad debt.
Your teenager will need to learn to put financial obligations like food, shelter, and transportation over desires like travel, fashion, and electronic gadgets. It is for them to recognize that they can splurge once in a while if their financial duties have been satisfied.
Allow your teenager to participate in simple operations such as ATM withdrawals, depositing money, operating lockers, and Internet banking while you explain how banking works. Also, explain simple words like interest rate, credit, debit, and loan. When your teen is ready to manage an account, they will not find bank-related duties confusing.
It’s critical to show them where the money comes from for all those credit card swipes, bill payments, and luxury items. Show them how much money is set up for taxes, retirement, and health care. Teaching a child how to read a paycheck can also save them from scratching their heads when the first one arrives, and it’s a lot less than they expected.
This lesson could be one of the most significant things you teach your teen because it will help them develop a saving habit and start investing as a teen. Put your teen’s money in a bank savings account, recurrent account, or fixed deposit, and tell them to retain some cash in the piggy bank at home. At the end of the year, explain how the money set aside has grown.
Make your teens work for the stuff they need for them to appreciate how hard you work to make a living. Connect some of their demands to tasks or duties they must complete. For example, if your teen wants a new bicycle, tie buying it to getting the best grade in class or completing errands at home.
Delayed gratification is a simple game to teach. Teaching teenagers about delayed gratification can help them avoid the “buy now, pay later” rave that can lead to credit card debt. Encourage them to understand that good things come to those who wait. For example, you can microwave a frozen store-bought meal and then prepare a homemade version with your teenager’s favorite ingredients. Although the homemade meal takes longer to prepare, it is superior in taste. This lesson helps your teenager not feel deprived if they can’t afford something at the moment.
The amount you give as an allowance doesn’t matter. Giving allowances is an excellent method to teach your teenager how to manage money properly. Many people’s first exposure to financial responsibility comes in as allowances. Giving a teenager a specific amount of money and the responsibility of paying for something they desire allows them to practice excellent money management.
Since teenagers are accustomed to their parents paying for everything, seeing how much goods really cost can be eye-opening. Allow your teenager to assist you in paying bills a couple of times, and when you go grocery shopping, have them assist you in sticking to your budget. This necessitates comparing prices and making decisions.
Additionally, when your teenager expresses an interest in an expensive item, such as a new cell phone, take advantage of the chance to educate them on how to conduct pricing research and assess how long it will take them to save enough money to purchase the phone.
When your teenager reaches 18, they are entitled to open a credit card account, which is one of their first steps toward establishing a credit history. Whether or not teenagers are ready for this level of responsibility is determined by many variables, including how well they’ve used a debit card and whether or not they’ve managed to save money. Use the chance to open a credit card account to talk about credit ratings and how they affect your adult life.
Teenagers often imitate their parents’ actions. They do it intentionally at times and unconsciously at other times. When it comes to financial management, the same may be stated. By being a positive example and practicing the skills you preach, you can demonstrate how money management skills are essential to your teenager.
By imitating your actions, your teenager will learn the proper method to manage finances. On the other hand, if you always use your credit card to buy non-essential items, you can’t expect your adolescents not to do the same. When you make an excellent financial decision for the whole family, ensure you tell your teenager about it. In this approach, they’ll feel more connected to the family’s financial situation.