There are things every teen should know about money, and if you don’t teach your teen the fundamentals, this can pave the way for poor financial management. You may feel that your teen has a lifetime to learn the importance of managing money, but these lessons are beneficial when taught at an early age. Kids are never too young to know how to manage their finances, even if it’s just an allowance. Here are seven things every teen should know about money before graduating.
1. Money Doesn’t Grow on Trees
If your teens doesn’t have a part-time job, or if you don’t require them to do extra chores around the house for the things they want, your kid may mistakenly think of your wallet as a never-ending money supply. Teens who work for extra spending cash can better understand the value of a dollar. And they may have a greater appreciation for the things they buy. There are no handouts in the real world - this is one of the most important things every teen should know about money.
2. How to Manage a Bank Account
Whether your teen works part time or gets an allowance, open a bank account as soon as he or she is old enough. A bank account is an excellent way to teach your child how to write checks and manage money. Once your child is old enough to get a cell phone or car, have him set funds aside to cover a portion of his expenses.
3. Importance of Saving Money
Saving is probably the furthest thing from a teenager’s mind, but learning how to save before graduating high school has undeniable benefits. Many young adults spend all their money on entertainment, clothes or food. If saving habits aren’t developed early in life, it becomes difficult to save in later years. Stress the importance of putting 10% of his or her pay (or allowance) in the bank.
4. Using Credit Cards Responsibly
Even if your teen doesn’t have a credit card in his name, he should know the ins and outs of credit management. Make sure he understands that credit cards are not freebies. Most importantly, make sure he understands the value of paying balances in full each month. This is the safest, most practical way to avoid credit card debt and keep a handle on his personal finances.
5. Stretching a Dollar
If teens see something they like - and they have money in their pockets - they may be tempted to spend. You should however, teach your teen how to shop around and get the most bang for his or her buck. For example, your teen can save money and get more for his dollar by waiting and buying items on sale or clearance. Additionally, he may enjoy greater savings by looking for coupons.
6. Importance of Good Credit
Not only does your teen need to know responsible credit habits, she should recognize the value of a good credit score. Make sure she understands that credit scores will determine whether she can qualify for a home loan or an auto loan, as well as the interest rate on loans. If your teen has a credit card, encourage her to visit Annualcreditreport.com at least once a year to check her report for errors or signs of fraud.
7. Identify Needs versus Wants
If your teen can successfully distinguish between needs and wants, she is on the right path. These are often confused, and when a teen has a warped view of what she really needs and what she actually wants, spending can get out of control.
Do not let your teen leave for college without knowing basic money-management skills. You don’t have to be an expert or all-knowing. Ultimately, they’re responsible for their own choices, but with a good foundation, they’ll likely make sound choices.
What are other important lessons to teach teens before they graduate?