One of the biggest favors that you can do your teenager as a parent is to teach the importance of financial responsibility from an early age. Many young adults graduate college with no savings account, lots of credit card debt, and upwards of $100,000’s in student loans or more. While borrowing money for school may be unavoidable, you can set your teens up for success if you teach them the importance of saving and avoiding bad debt from the time they are young.
Set a Budget
Teens come with a lot of expenses. Whether they work a part time job or receive an allowance, it is a good idea to help your teens to set a budget. You should dedicate a portion of the money that they receive to three categories: saving, donating, and spending. Ideally, 10% will be donated and the rest will we split between the other two categories (45% in savings and 45% for spending). However, if your teen has higher expenses, such as car insurance, they may need to lower the amount in savings to about 30%. Sit down with your teen, go over their expenses, and help them create a budget that includes each category.
Make Them Earn Money
Teens will never learn the value of a dollar unless they earn it. Professionals recommend that teenagers do not receive an allowance in exchange for doing simple chores around the house. Rather, tasks such as loading the dishwasher or walking the dog are to be viewed as an important part of being a family. Instead, make your teens earn money for tasks beyond their everyday chores. Mowing the lawn, raking, painting a room, or washing the family car are great jobs that teens can do in exchange for some extra income.
Talk About Credit Cards
When your teen turns 18, he will be bombarded by credit card offers. Talk to your teens about all of the aspects of credit card ownership, including credit reports, credit scores, interest rates, and credit limits. Show your teen how much they will end up paying for their new shirt if they pay for it using a credit card, rather than saving up the cash to pay for it. The cost of interest payments is shocking to most teens and is a great cautionary tale to keep them out of the grips of the credit card company.
When your teen wants something new, help them to shop smart by comparing brands, prices, and reviews. This is especially important for big-ticket purchases, such as electronics. Take time to do your research and help your teen find the best product for the best price. Then, help them develop a plan to save for their next purchase.
Be Honest About the Family Budget
As a parent, you work hard to manage your family’s budget. Include your teen. Let them know about your family’s monthly expenses, including the mortgage, gas, car insurance, utilities, and groceries. Give them a realistic idea of how much money is left over after the bills are paid, and have them help you think of fun things that the family can do together without going over budget. Involving your teens in real family finances gives them a good idea of how money works in the real world.