Money Management Tips for Teens
Start with the Basics
When it comes to money, many teens are simply unaware of how much their expenses impact their income. Unfortunately, this often leaves them unprepared when leaving for college or heading out on their own. Many teens go through financial struggles that could have been avoided if they learned early on how to better manage their money.
Teaching teens the importance of money management, sooner rather than later, helps prepare them for various financial situations they may face when they are on their own. Discussing the following topics with your teens can help aid in the development of good financial habits early on.
Need vs. Wants
Teens can be quick to claim that they “need” a lot of things in their lives. So, you'll have to establish a baseline between what they need, and what they want. Use common things around the house, or in stores while shopping, to help them figure out what is truly important for their daily lives.
For example, have a conversation with them about the $200 shoes that they want. They may try to argue that they need them, but they already have three pairs.
Another idea to give them some perspective on expenses is to jot down items you currently pay for on their behalf that they may take for granted. For example, their phone bill, Netflix, Spotify, Hulu, and other subscription services. While you may not make them pay for all these items now, they must understand how much these items cost as a whole, and that they are not free.
Help Create a Budget
How to balance a budget is another important lesson for teens to understand money management. The first step is to have them write out how much income they make from a part-time job, allowance, etc. Then, have them list their one-time and reoccurring expenses. By having these numbers written down, your teen can gain a better understanding of their cash flow. If they know how much money is coming in and going out, they may learn that they need to cut back on their expenses so that they can start to save their earnings. Impulse buys can be especially hard for teens, but we have a few tips for how to better manage spur of the moment purchases.
Open Checking and Savings Accounts for your Teen
To learn how to manage their money, teens should start with having a savings account as well as a checking account with a debit card (Note: A parent will typically have to be a co-signer on the account if the teenager is under 18 years of age and wants a debit card). With a checking account, they will be able to make both in-store and online purchases.
With their checking and savings account, you can help them check out their account statements and learn how to set aside some savings each month, while still having enough to pay for their expenses. More importantly, in today’s world, you can teach them how to regularly log in to their accounts to view transactions and track their activity regularly. There may even be a few bills that they can pay to teach them good money habits.
Teach the Difference between Good Debt and Bad Debt
With the number of television commercials and social media ads concerning debt problems, most teens may associate debt as being a negative thing. However, they should know the importance of good debt in helping to build a good credit history which will be an asset to them later in life. Teach them how to recognize good debts, such as:
- Home mortgages with low-interest rates and good payment terms to build equity
- Personal loans used to make home renovations, consolidate debt or start a business
- Student loans to earn degrees and obtain future careers
- Vehicle loans for transportation purposes
Also teach them about bad debts, which can come in the form of credit card debt spent on luxuries and high-interest personal / payday loans used on consumer goods such as big-ticket electronics.
A teen that develops good money management habits now will be better prepared for financial situations they will encounter in college and when they move out of the house. Make sure to cover the above topics with your teens. Even if they stumble some with their finances, they will be able to learn and recover better at a young age and under your guidance. As they learn from life’s lessons, they will be able to become better budget planners throughout their adult lives.
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By Campus USA at 17 Feb 2020, 15:07 PM