If your teenager has started their first part-time job, begun to earn an allowance, or is eager to enter the work force, now is the time to talk about money. Financial responsibility is a lifelong lesson, but by laying down the foundation of financial smarts early, your teenager will better understand how to budget, save, and spend now and in the future. The following tips will help you teach your teen how to take responsibility for their finances.
Stress the importance of a budget
Receiving a paycheck is an empowering moment for every worker, especially teens who are new to earning money. After receiving a sizable sum, they might be eager to spend. Even though it’s their money, you need to step in to help them see how to make their money go further than a night out on the town by teaching them the basics of budgeting. By learning how to establish a simple budget, your teen can see what money is coming in, what money needs to go out to cover expenses like gas for the car, and what money should be saved for the future, like for college or a new car.
Break down the difference between needs and wants so your teen can be smart with their savings. “When you walk through the budgeting process with your teen, mention the benefits of having an emergency fund. With a safety net, teens may experience less financial stress in the wake of unexpected events,” advises Rebecca Lake, writer for TheBalance.com.
Open up an account
Whether your teen is collecting cash from an allowance or a paycheck from an employer, they will need a proper place to keep their money. By opening a savings account at a financial institution, your teen can start to understand the basics of banking, including how their money can earn interest. Many banks and financial institutions offer plans and accounts that cater to young earners while still allowing you to have some control or at least knowledge about their money habits.
Saving isn’t as exciting as spending, but you can help your kids understand the value of saving by setting a goal.
“If they want to buy a $50 video game, for example, and they get a $10 allowance each week, help them figure out how long it will take to reach that goal, based on their savings rate,” Rebecca Lake writes on Investopedia.com.
Make it a topic of conversation
The more you talk to your teen about money, especially if they are college-bound, the more informed and confident they will be when it comes to making financial decisions. “This is an appropriate stage to begin involving your child in your family’s financial situation, especially once college becomes a closer reality. At the dinner table, talk about credit scores and what it takes to apply for financial aid. Education is power,” according to Kathleen Murray Harris, writer for RealSimple.com.
Teach them about the stock market
You can go beyond the basics of saving and checking accounts with an introduction to the stock market. The opportunity to invest in stocks will show your teen about the potential earning power of their money, according to Barbara Booth, writer for CNBC.com. “The earlier your child starts investing his or her money, the greater the rewards are later. That’s due to the magic of compounding, wherein the gains continue to grow, because each year money is made from the previous year’s profits,” she adds.
Teaching your teen how to be responsible with their money will help them now and as they grow into adulthood.