Most teenagers think they know everythingâ€¦ including everything about money. And it seems they should in light of the fact that they collectively spend more than $100 billion a year! But the reality is, most teens are very inexperienced at managing their own money. As parents, itâ€™s our duty to teach our childrenâ€¦ not just about Godâ€¦ but also about life. And that includes money management.
Here are a few essential money tips teens (and adults) should know.
Create a Spending Plan and Follow It
Help your teen make a budget to live by. After all, you do this, right? If they are not working, set up a spending budget from their chores, and use this for their clothing allotment. It will help them see that there are boundaries on their spending. This will be an essential as they move out on their own.
Managing a Checking Account
Even though banks are quickly going paperless, make sure you get your teen a checking account as soon as they begin earning money. Teach them to balance the book every month until they begin to grasp how it is done. This will teach them to be accountable for their spending, and to know where their money is going.
Why do Credit companies regularly bombard teenagers with offers for credit lines? Because the typical teen doesnâ€™t understand credit. This is a gold-mine for credit companies. Teach your teen about credit as soon as possible! Here are some essentialsâ€¦
- every time you make a purchase, you are taking out a loan
- Each one of these loans comes strapped with a high price called interest. Paying the minimum payment on your loan at 18% interest will take you 8 years to pay off only $1000!
- The only way to avoid this monster is to pay off your balance each month
- You donâ€™t need more than one credit card.
Wisely Saving and Investing
Teens have a great advantage over adults when it comes to saving moneyâ€¦ and that advantage is called time. Because they are so young, they can take full advantage of a thing called compounding interest. Imagine thisâ€¦ if a teen can invest $2000 per year into a Roth IRA for 5 years, the interest on that money alone would compound to $1 million of tax-free money by the time theyâ€™re 65 years old! Teach them to save as soon as possible.
Earning the Paycheck
Managing money has the most relevance when the money is your own. Allow your teen to take on a small job during the school yearâ€¦ even if you are financially stable. This gives them a sense of responsibility and helps them prepare for the work force. Make sure they donâ€™t work too many hours, thoughâ€¦ you donâ€™t want the job to interfere with Church, homework and healthy social or school activities.