Parents with teens are on the verge of raising young adults preparing to begin their first job or heading off to college. When teens get their first job, they may want to spend their first paycheck on a shopping spree. That is why it's so important to teach children age-appropriate money habits before getting their first job. Young adults face insurmountable credit card and student loan debt, so teaching your teen positive money habits is essential.
Parents should encourage their teens to save money and set financial goals to understand the practice of budgeting, saving, and investing. Encouraging saving and goal setting with teens helps build a solid financial foundation for their future. In addition, knowing how to budget and save for goals can reduce the chances of getting into uncontrollable debt in the future.
Finance 101 for Kids: Money Lessons Children Cannot Afford to Miss (Ad) can help your teen understand interest, budgeting, investing, and other basic financial lessons. Andal also covers the fees associated with a bounced check. Today's teen has probably never used a check or seen you use a check. However, they may receive a checkbook when they open their first checking account and should understand the responsibilities of the payer and the payee. Many other lessons can help you start the conversation with your teen about money management.
Saving can help teens prepare for financial responsibilities later in life because it can reduce the need to get into debt using credit cards or obtain loans with high interest rates. It can also show how putting away a little money can grow over a long-term period. Having a savings account in addition to an emergency fund can help ensure that you can pay for unexpected expenses with cash. Ultimately, preparing for financial obligations in the teenage years will set a solid foundation for budgeting and saving for future goals.
See my feature in Conversations To Have Once Your Teen Starts Earning Money.
Teens can learn how to balance a budget at home to be prepared for life after high school. Most college students leave home with limited knowledge of how to manage their finances. A survey by Piper Sandler found that teens spend 22% of their income on food and 21% on clothing. Spending will increase even further as the effects of the pandemic lessen.
For this reason, teaching your children to budget at home can help them manage future student loans, scholarships, and household expenses such as rent or groceries. It can also decrease the need for their parents to fill in the gap when they run short on cash.
Parents can start investing on behalf of their teens by opening up a custodial investing account. The money in a custodial account is in the teens' name and can be transferred after they turn 18. It's a good practice to have your teen by your side when you are investing on their behalf. It can help them understand how to invest, the market, and how market fluctuations affect their investments.
It's essential to continue to talk to teens about money. Having continual money conversations can develop other questions that build on their financial knowledge. It's okay if you don't know the answer to their questions. You and your teen can learn together and realize that not knowing the answer is common. Constant discussions about money also imply that their financial situation should be monitored and adjusted as their financial goals change.