8 Financial Tips for Teens
Date: May 11, 2016
Even teens who shine in subjects like calculus and chemistry often fall short when it comes to real-world finance. According to the non-profit Council for Economic Education, only 13 percent of American high schools require students to complete a personal finance course to graduate. This means that most teens must rely on their parents or their own research to figure out how to handle money. A few quick tips can get your teen on the fast track to financial understanding.
Thanks to financial software and electronic payment services like PayPal, balancing a checkbook has become less and less common. But teens still need to understand the basics of what a checking account is. Teens should grasp the concept that if more goes out than comes in, an overdraft will occur, typically triggering bank fees and possibly even the shutdown of an account. By tracking all entries as they occur, this is less likely to happen. Another benefit of handling a checking account is understanding the powers and limitations of a debit card, which can be used to make purchases but only to the extent that there is still cash in the account.
Get a Job
Getting a job can provide a vast amount of financial information for a teen in one fell swoop. A teen's very first paycheck will bring the lesson that you don't get to keep all the pay you earn. A pay stub offers a great opportunity to introduce concepts like taxation and Social Security withholding — the results are there in black and white. Your teen could also learn about direct deposit, if applicable, or how to deposit a check at the bank.
Make a Budget
After your teen has a job and he understands how a bank account works, it's a great time to talk about budgeting. A teen who learns how to budget will understand that personal finance is about more than earning and spending and hoping there's money left over at the end of the month. A budget lays out a financial game plan that can help ensure your teen won't overspend. Talking about a budget is also a great way to explore the differences between needs and wants and how to prioritize money that comes into a bank account.
Study Savings and Investments
Few people ever get wealthy based entirely on the salaries they earn. Savings and investments over time are what generate long-term prosperity. This can be a tricky lesson to teach teens who generally have no great concern for "the long haul" and who may have a hard time denying current wants for uncertain future benefits. Ingraining the habit of saving a bit of every paycheck as a teen can be of significant lifelong benefit, however. Help make the benefits of saving more concrete by tying in a teen's savings habit with something more immediate, such as the rising costs of college.
Start a Club
Most things that involve short-term pain in exchange for success — such as working out to lose weight — are easier to handle when you're part of a team. Giving up money now for long-term investment success can be tough for a teen to process, so consider having him join or start an investment club. Your teen might feel more comfortable saving and investing money rather than spending it on the latest trend if he's surrounded by a community of like-minded teens who are all learning and talking about investments.
The best time for a teen to learn how to manage credit is before he gets his first credit card. At first glance, a teen might think a credit card is an unlimited spending account where only minimum payments are required and you never technically have to pay off the full balance. Make sure that your teen understands that purchases not paid off in full every month accrue interest, typically at very high rates. Using actual numbers can often prove fruitful in teaching this lesson. For example, a $3,000 credit card debt with an 18-percent interest rate will take nearly 22 years to pay off if he makes only minimum payments, with more than $4,100 in interest charges accruing over that time.
Experience Real-World Problems
It's easy for teens to be financially irresponsible if they're not using their own money, so let them pay for certain things with their own earnings. For example, have him pay for his own gas, insurance and maintenance if your teen has a car. If he buys an extravagant item, like an expensive cellphone, have him pay for any damages out of his own pocket if he breaks it. The sting of losing his own money can often make a teen more financially responsible.
Enjoy Short-Term Rewards
A teen who learns that financial literacy is all about short-term denial for long-term gain is missing an important part of the picture. Enjoying shorter-term benefits as a reward for successfully saving is equally important. If your teen is in the habit of saving, set aside some of that money for more exciting pursuits such as a car, an upcoming concert or the prom. Teens who see both immediate and long-term benefits from saving are more likely to continue saving throughout their lives.