Equipping Your Teenager with the Needed Financial Tools for Adulthood

Teaching teenagers how to manage their finances when they become adults is one of the most important lessons that a parent can impart.

Here are four basic lessons on money-management for teens that parents should plan to teach their teenagers early on:

1. Credit is not the same as cash.

Teenagers are likely well-versed in how to use a credit card (”swipe the plastic and you pay later” – or so they may think). However, they may not understand credit card rates and fees.

LESSON PLAN:

• Explain how interest rates, late fees, and other charges can ultimately increase the amount that your teen owes.
• Teach how to manage debt and the importance of paying bills on time, preferably in full or else by making more than the minimum payment due, and of avoiding late or missed payments.

2. There is no such thing as “free.”

The sooner that your teenager understands this concept, the better. He or she already knows that everything at the store has a price and that you have to make a purchase in order to receive the products or services. What he or she may not realize is that services and utilities, such as electricity and gas, cost money as well.

LESSON PLAN:

Have your teen sit with you as you pay the family bills each month. You also could have him or her write out some of the checks and log them into your checkbook, to get a better feel for the process. You’ll be giving your child a hands-on understanding of how much the monthly expenses cost, from the mortgage payment to utilities, telephone, and Internet charges. Who knows, maybe your teen will start thinking twice before leaving on a light!

3. Don’t spend more money than you have.

It’s a simple concept: Live within your means and don’t let spending exceed your income. This can often be easier said than done, which is why it’s important to teach teenagers how to budget and how to track their spending.

LESSON PLAN:

• Make a list, starting with income: Does your teenager have a part-time job? Do you give your teenager an allowance? Does he or she receive income or money from other sources?
• Make a second list, for expenses: What are they, and the amounts? Help your son or daughter to calculate how much money he or she will need each month for expenses. The key is to visually see the difference between things desired and things actually needed.
• An additional approach might be to include your son or daughter in helping to calculate and create your annual family budget. This can help demonstrate the concepts that you have been teaching for his or her budget, applied on a larger scale.

4. Put money aside for a rainy day.

The notion of having to wait in order to save up for a large purchase can sometimes be frustrating, especially if someone is used to instant gratification. Encourage your teen to get into the habit of “paying yourself first.”

LESSON PLAN:

• Teach your teenager that every time a paycheck or allowance money arrives, he or she should immediately put a certain percentage of it into a savings account.
• It’s also important to stress the importance of having a nest egg of savings for unexpected expenses. For example, is your teenager saving up to buy a car? Make sure that he or she understands that once the vehicle has been purchased, the need for savings does not end. Any repairs and tune-ups, in addition to fuel and insurance, all cost money, too.