Most teenagers need support from their parents to develop financial literacy skills. High school students are rarely given the opportunity to take a course on how to develop smart money decisions. Spending time with your teen to enlighten them about developing good personal finance habits will benefit their financial future.
1. The Basics of Budgeting
Help your teen understand how a budget works. They don’t need to see an excel spreadsheet, or check your bank statements. You can start on a small scale by listing a few expenses that your teen contributes to like a cell phone bill, movies, haircuts and clothing.
Set up a mock budget with a reasonable income amount and show them how to deduct their expenses. They will quickly discover about the importance of being thoughtful when spending money.
2. Setting Goals for Saving
When they were a young child, you may have started to teach your son or daughter the importance of saving by dropping coins into a piggy bank. Maybe you opened a savings account for them where you deposited gift money from relatives.
If your teen is earning an allowance, babysitting, or earning money at a part time job, encourage them to save a portion of their money. Setting a goal will help them to see the value in saving.
3. Building Credit
The concept of a credit score may not be relevant to your teen, but they need to know how this score impacts their future. Explain how banks and other lending agencies use this score to approve car loans, credit cards, personal loans and mortgages.
As an adult they should always pay their bills on time and pay their credit card balances in full to earn a good credit history. They need to know that a strong credit score will save them a great deal of money in lower interest rates.
4. Using Credit Cards Responsibly
Although your teen doesn’t have their own credit card they need to understand how this works. Explain that a credit card should be used to buy necessities and paying the balance off in full every month will prevent any accumulated balance and interest.
You want to explain that there are spending behaviors to avoid so they do not incur credit card debt. That new pair of Nikes or Michael Kors bag could end up costing twice as much if they don’t pay the monthly bill in full.
5. The Danger of Identity Theft
Unfortunately in today’s digital world, consumers have to be diligent in protecting their personal information. We have moved towards paperless billing and allow companies to withdraw payments from our checking account or charge our credit card.
Set a good example by showing your teen how you check your online accounts to verify the charges and payments. Use a reliable service to run your credit report semi-annually and share this information too.
Final Thought: Talking and working with your teen to develop personal finance literacy will make them more likely to save, budget and invest as an adult.