Teenagers need to learn how to manage their money when they grow up.
But the sad reality is, many parents find this a challenging hurdle to overcome. Discussing family budgets, getting teens to care, or knowing how to handle money can be difficult for parents.
In this article, I’ll share practical tips on how to make this daunting task easy.
Model Good Money Management
Watching how you handle money teaches your child valuable lessons. That’s what it meant by this Jamaican saying: “What monkeys see, monkeys do.”
So, parents should be modelling responsible attitudes toward money. Show them how to manage money in simple ways. By doing this, you can help your child develop practical skills in money management.
Also, another way to teach them is by getting them involved in household finances. Here are some tasks that you can do with your teenager.
- Establishing family budget
- Making savings goals for the family
- Making an emergency fund
- Defining what the family needs vs the wants
- Saving for something important
- Organising the bills to be paid
- Keeping impulse purchases to a minimum
Make Your Budget With Your Kids
Allow them to be part of family budget discussions. It’s okay if they don’t understand it right away. Start simple.
Let them be a part of your budgeting meetings with your spouse. Take the time to go over your budget with them line-by-line.
The goal is to engage your kids in understanding how much money comes in. Help your kids understand how to divide the money equally for family expenses. And also teach them the importance of saving money.
The kids will see how much money should be spent on essentials. It can also illustrate how much money can be spent on other costs.
Make sure your teen knows that not all expenses are the same. Some costs are necessary, such as food. At the same time, others are an investment in the future, such as education.
Teenagers need to see a real-life example of how budgeting works to learn and put it into action.
Educate Them on How to Manage Their Finances Responsibly
A teenager’s first step to responsible money management is having a set amount of their cash that they can spend at will. The earlier you start this process, the better.
Providing your teenager with a fixed but regular cash flow will teach them budgeting skills. Whenever they make mistakes or make impulse purchases, they will be the only ones to pay for those mistakes. As a result, your teens will be more careful when making purchases.
By doing this, your teens will always know that there will be no more pocket money to be given until the following schedule.
A teenager who gets money whenever they need it won’t be responsible for their finances.
Encourage Them to Handle Their Own Money
Your child should be given more control and responsibility for spending their money as they get older. It helps your child learn financial management skills that will last a lifetime.
It might be helpful if you and your child determine how much money can be saved or spent. It’s important to encourage your child to save money rather than spend it all.
Money management mistakes are inevitable. That is whether your child spends a week’s allowance in a day or two or impulse buying stuff that they don’t need at all. But your child may learn from the experience and do it differently the next time.
Help Them Set Up Their Bank Accounts
Help your kids open a savings account for savings and a checking account for daily spending. Setting up a joint teen checking account achieves the perfect balance. It means the balance between independence and supervision.
You will keep complete control over the account. And at the same time, it allows your teenager to track it online by setting this up. After that, you can provide them with a debit card associated with the checking account.
Having a debit card means they don’t need to bring cash, and you can keep track of where the money is spent. The cards offer the same convenience as credit cards. By doing so, parents can check their teenage children’s spending.
Teach Them Not Only to Save but to Invest
In addition to managing their money, they should also save up and invest their money. Your teens should learn to save 10% of their money in both short-term and long-term accounts.
Consider teaching them about 401k as well. Then, as soon as they are ready to live independently, they can truly set themselves apart from the crowd.
Teach Your Kids to Invest in the Stock Market
Though most people, including teenagers, should avoid picking stocks, it can be a great lesson for someone just starting. In addition, watching individual stocks over several months can be an excellent way for teens to learn about how the stock market works.
A lesson like this may be more valuable than the results that an automated investing service would have obtained.
Allow your teen to purchase some shares in any company they want. Then, regularly have them check the performance of the stock. Explain to them why the shares increased or decreased in value.
Teens won’t need to risk that much money if they buy partial shares in companies through brokerages. Instead, your teen can put money in through small amounts, and they can observe what happens in their investments.
Establish a Budget With Your Teenager
Managing money is one of the most critical life skills we parents try to teach our children. But, unfortunately, teenagers are more likely to spend money than learn how to budget it.
Educating your teen on the basics of budgeting can set them up for financial success. And also can maintain their financial independence in the future.
Your teen can set a budget whether they work part-time or receive an allowance from you.
Your teen will learn a lot about budgeting if you teach by example. Consider creating your budget now if you don’t already have one.
If you have a system to manage your money, you should share it as much as you’re comfortable with your teen. You can give your teenager real-world examples of managing money and budgeting by letting them sit with you when you pay bills from time to time.
As a parent, make it a goal to teach your teenagers how to manage their budget in preparation for life outside the home. Show them how to manage money and expenses like adults. It’s a lesson they will never forget.
Teach Responsible Borrowing to Build a Positive Credit History
Credit plays a crucial role in adult life. When your teen becomes an adult and wants to take out a loan, buy a car or rent an apartment, they’ll need a credit history. They can qualify for better rates and terms by having a good credit history, resulting in thousands of dollars saved over their lifetime.
There are several ways that you, as a parent, can assist your teenager in building a credit history that will propel them forward.
A credit line is something you may want to consider. It usually happens in the late teens, so don’t rush it. Once your child is ready, you can help her build a positive credit history.
Parents often wonder whether their child should have used a credit card. The decision to let your child use credit is entirely up to you. Making your child an authorized user of your credit card account can have many benefits.
It can be helpful for your teenager to start a student card or to make emergency purchases. Yet, it’s not just about establishing a good credit score; it’s also about using credit cards responsibly. The only way to learn that is by doing.
Other than that, your teenager can also start building credit by getting a loan from Lucky Plaza money lender like Cash Mart. Unlike credit cards, they can get a lump sum of money and use it for personal needs like financial emergencies.
But you should teach and assist your teen when they apply for loans. Make them understand its pros and cons and how it works. Of course, it would be a challenge for them. Yet, with such a challenge, your teenager will grow and become a sensible spender. Thus, they will appreciate the value of money.