Do your teens spend and save their money wisely?
Do they really know the value of money?
Teach them to develop good money habits now, before they leave the nest.
Prepare your teens to enter the workforce as well equipped, Savers and Money Managers.
Read more for five important money lessons to teach your teens now.
The most effective way to teach smart money habits to your children, is by modeling them on a daily basis!
• If you are a smart shopper and look for sales and better deals, your children will learn that from you.
• If you have money set aside to pay for big ticket items rather than borrowing, that is another lesson your kids can learn.
• If you plan for the future by setting up savings and retirement funds, that is another important lesson.
5 Lessons Teens should learn about Managing Money
Earn Some, Save Some
As soon as teens are old enough to make some money on their own, teach them to save some! Although it is a thrill for kids to have their own money to spend, they shouldn’t be blowing all their birthday or holiday money in 10 days!
When kids are old enough to have a job, encourage them to save half of everything they make. Wouldn’t it be nice to be able to do that as Adults? Really, can you imagine banking Half of everything you earn?
Kids should learn how to save up for a major purchase, special trip, rainy day or even an emergency fund. Learning good financial habits now will pay off in the future, literally!
Budgeting 101: Essential and Non-Essential Spending
Learning to control impulse buying and non-essential spending is important for EVERYONE to learn and practice regularly. Actually doing it, is another story!
Once you have some money to spend, it’s easy to develop some bad spending habits. Having cash in your pocket or a credit card doesn’t mean you NEED that great item that is on sale! It is a good idea to attempt to make your teens understand real life needs and wants. For more about saving money on a daily basis, read this post!
Essential: Rent/Mortgage, Car Payment or Transportation, Clothing & Food, Car Insurance, Medical Insurance and more. These are essential spending items.
Non-Essential: Eating out at restaurants, stopping for fast food, pricey designer clothing, buying lunch instead of bringing it, vacations, entertainment, gym memberships and going out on the town with friends. These are non-essential items, but we like them!
Keep reminding your teens of the difference between these two expenses!
You can play a money game for a week, to teach needs and wants.
First, tell your teen to write down everything they use or consume for a day or two and the approximate costs. (they will forget many things, let them!) Then give them a budget of $200 – $500 on paper, to last them a week. Make them keep track of ALL their expenses.
If they track all their food, shopping, entertainment and other expenses for a week (depending on the kid) they may think they did great job. They may even think they have money to spare! Now is the time to remind them of the expenses they overlooked.
Then, remind them that they didn’t include: rent/mortgage, clothing cost, transportation, medical/ insurance, phone bill, electric etc, etc.
Without scaring your kids too much, give them some idea of what living costs mean. Since parents pay for many items that teens are unaware of, they forget that those costs will be necessary when they grow up and move out on their own. The more teens learn now, they better prepared they will be as young adults.
Start a Teen Checking Account
Many banks offer high school checking accounts for minors. These are for teens age 13-17 but are still co-signed by a parent. This is a terrific way to let your child experience what it really means to use a checking account and debit card to pay for necessities.
I think it’s an excellent idea to open a checking account and use it for a year before your high school graduates go off to college or to the working world. Your teens will learn how to manage their own money and bills with your guidance. They will now how to write a check, pay a bill and manage a debit card. If they learn how to use online banking, that is an added bonus.
Learning these banking and money skills now will mean one less worry for you when your kids are away at college. Hopefully, they already know how to cook a little and to wash their own laundry!
Save $1200 per Year – simple ways to save money
Pay Debt Faster – make your debt more manageable & pay it down
Hidden Budget Expenses – find them in your spending
Different Types of Accounts
Show your kids what it means to earn interest, and the different types of accounts available. Should some money be in a savings account available right away? Yes! Will money in a standard bank account earn lots of interest? Certainly not, pennies are more like it! Show your kids what .01% interest looks like, as in not very much.
When your teens have more than a little money saved, consider a short term CD or mutual fund type of account. These accounts can earn a little more interest than standard savings. These accounts, although they carry more risk, can also earn you an impressive passive income.
For more about making your money work for you, see Lance’s post at Money Manifesto.
Another good article about Compounding Interest and how teens can become millionaires, from Dave Ramsey can be found Here.
Benefits of Automatic Investing
I got some wonderful advice when I was in my early 20’s and had my first teaching job with a real salary. I was encouraged to start a mutual fund and put away money from every paycheck. Truthfully, I had no idea what a mutual fund was at the the time, but it seemed like a good idea. So, I did it!
Since the designated investment money leaves your bank account automatically, you never really miss it. I started small with $50 per month which seemed like a lot at first. After a few months, I realized it wasn’t that bad and I really didn’t notice it anymore. This money grew very quietly, for years, untouched.
I would see on my quarterly and annual statements how this money was growing. More importantly, I saw the type of interest it was earning! Mutual funds typically earn interest aligned to stock market expectations. Yes, there is risk involved with a mutual fund! But, there is also potential for your money to earn an impressive passive income!
Every few years, I increased my monthly contribution to the account but it is still not a huge amount from each paycheck. For many years, I had no reason to touch this account and all that compounding and interest has paid off.
Now that I am married with children, this same mutual fund account has proven extremely useful. This mutual fund has now become my emergency fund and my vacation fund. I have withdrawn from it on it several occasions over the last ten years for various reasons. Thanks to compounding interest and stock market returns, I have money to use without draining the account. If I hadn’t started this fund in my 20’s, I would not be as financially comfortable as I am today.
This was smart money advice that I didn’t get from my parents probably because they didn’t get it from their parents. I was lucky enough to be guided in terms of investing, mutual funds and retirement accounts when I was young and just beginning my career. This advice has proven to be invaluable and I don’t need to wait until my children start a career to guide them. I can start now by teaching my children how to spend, save and manage their money wisely.
When children are very young, they don’t need to know too much about money and spending. If they never begin to learn about budgeting, the cost of living and money management, they will be unprepared for these events.