Tips for Teaching Teens About Money Management
As a parent, it is important you encourage your child to make good choices – and learning how to manage money is a big part of that process. The information below will help you and your teenager get on the right track towards creating a financial foundation that could last a lifetime.
Create positive spending and savings patterns.
Start by instilling the values of spend, save and share with your teen. Let your teens know that the earlier in life they put a reign on their spending, the more money they are likely to save. Discuss using 10 percent of their earnings for charitable contributions so they can learn the value of giving back. It is very tempting for teens to spend their money on the latest trends. You will need to urge them to try to spend as little as possible on the things they don’t need. Take 40 percent of their earnings and put it in to a savings account and let it build up over time. What they will find is they have enough (approx. 50%) to use at their discretion and spoil themselves a little. One of the easiest ways for your teen to learn how to spend is if you help them prepare a budget. Allocate the necessary funds into the things that matter the most. They can make a draft of how much they think it will take for certain activities. Remind them to always plan for unforeseen expenses that may arise. By setting some easy to understand patterns while they are living under your roof, they can develop good budgeting habits.
Get started on a path to building credit.
It will be important they set up a checking or savings account, make regular deposits, and keep their account in good standing. If your teen gets off on the right financial foot today, it will be easier for them to get their first loan . Most importantly, it allows your teenager to learn about online banking and using ATMs.
There’s a way to build credit without the risk of credit cards. You can cosign for a credit card to be used for overdraft protection or purchases. You can monitor its use and help encourage your child to pay it off as soon as possible after it advances.
It’s important to set goals.
What about asking your teen to make a list of items they would like to purchase with their money and help them set a reasonable date to accomplish this goal. Having an end date can sometimes help teenagers save the funds that are needed for that special purchase and can serve as a great lesson on how to meet your financial goals through a money management plan.
Help them begin saving for retirement.
Teach them that it’s never too early to start saving for their retirement. If your son or daughter is working give them an opportunity to open an IRA. Even the smallest savings can turn into a nestegg down the road.
Try not to bail them out.
A lot of teens find it hard to ask for help. What they will need to know is that they are able to receive the necessary financial guidance from friends and family. If, despite all your best efforts, your teen becomes overextended on credit, make sure you let them experience the consequences of a bad financial decision. It’s better to help them take responsibility for a small debt now than a $50,000 debt later on!
Below are some other ideas you may consider for your teen:
- Discuss the difference between "must-have" purchases such as school supplies, and "would like to have" purchases, such as the latest fashion trendy jeans.
- Explain the advantages of deferring purchases today, like a computer game or concert tickets, to save for another desired item like a car or college.
- Promote shopping around before making purchases. This will hopefully assure getting a better deal and discouraging impulse buying.
- Lastly, promote the use of financial (checking account, credit card) statement reviews as an aid to evaluate spending habits and promote good financial practices.
Also, Credit Unions are a perfect place for them to get started on the road to responsibility. They provide tools that provide the financial education they will need to make educated choices when managing their money. At allU.S. we can help your teenager save, spend, borrow and invest their money the smart way with our financial tools. We offer no monthly fees and require low opening deposits – features that are critical to a teen’s financial growth.
For teens, there is no other way to go besides joining allU.S. Credit Union. With the absence of fees, and the presence of low interest rates, an account can actually grow, and a teen can make financial progress.