7 THINGS YOUR TEENAGER NEEDS TO KNOW ABOUT MONEY
Help Your Teen To Manage Money Better
Got teenagers? Does this sound like them?
“Money grows on trees.”
If you find yourself nodding in agreement, welcome to the club!!
Many teens are oblivious to the basics of finance. Things like
- What does it mean to be in debt?
- What are the kinds of banks accounts they can have? Which one should they actually open?
- What are their rights and responsibilities as an account holder.
Research confirms that most teenagers have have a less than desirable understanding of money and finances. At the National Financial Literacy Test, 15-18 year olds score an average of 60 percent.
Teenagers in US lag behind their peers from other countries in financial skills. A study by the OECD (Organization of Economic Cooperation and Development) tested the financial skills and knowledge needed to make the jump from high school to college before joining the workforce. The study found that one out of every 5 American teenagers did not have the necessary skills expected of them at their age. Teens in China and Russia were better equipped with financial skills and knowledge. Only one in 10 kids failed to meet the same criteria.
Financial planning and execution makes use of a lot of executive functioning skills, which teenagers are developing. This is the right age to start teaching them about their money. You can help them avoid making mistakes later on in their life by equipping them right now.
Financial Literacy Skills Teenagers Needs To Know
With some patience and organization, you can help your teenagers learn these useful money management skills.
- EARNING MONEY – it is all about sweat and tears
- BUDGETING – have a plan for your money.
- SAVING – pay yourself first
- BANKING – open an account for them. Now.
- DEBT – it can swallow you.
EARNING MONEY – Money is earned. It does not grow on trees.
Your teenager is at the age to understand where money comes from. The proverbial pot of gold is, well, just that.
If possible, let your kid go get a job and earn money. This experience will single-handedly increase his appreciation for all the sweat and tears you put in. It could be anything
- A part-time job.
- A summer job.
- Walk dogs.
- Baby sitting.
There are a lot of options. Just make sure that what your child is doing is appropriate for his age. The Department of Labor has some guidelines to help you decide what may be off-limits.
Talk to your children about what kind of jobs they can consider doing. Agree on the number of hours which will not interfere with school and other activities.
If time or other considerations prevent your teen from taking up a job outside the home, think about paying him for doing household chores. This could be either an hourly pay or based on the type of chore.
If studies are a priority, work out a system for him to earn based on the number of hours of study or his performance in tests and assessments.
The important thing is to avoid giving him a monthly allowance as a dole. Let him earn it.
Another thing is to actively involve your teen in paying him his salary.
- Agree on weekly / monthly payment schedule.
- Write out a check that he can deposit in to his account.
- Let him keep a track of the work done. Then raise an invoice for it – be it weekly or fortnightly.
Active participation in your household economy is a great learning opportunity. Don’t let him miss out on it.
BUDGETING – Have a plan for your money.
Let your teenager be responsible for some of her expenses. These could be large irregular expenses like buying a new phone or regular one like paying for her phone bill. Agree upfront on what she pays for.
Here are some suggestions that you could consider:
- Personal – toiletries, cosmetics, hair and beauty
- Clothes – shoes, accessories, sports uniforms
- Entertainment – movies, music, concerts, eating out
- Mobile phone
As a student, your teenager might be able to put in more hours of work during certain months (vacations) and less during the others (exams). Her earnings will fluctuate.
This is an opportunity to let teenagers learn some basic principles of finance that will serve them well in the future. Use these changes in earning to talk about ‘needs’ v/s ‘wants‘ and the importance of saving for a rainy day.
As a parent, your job is to remind her that money is finite which leads to trade-offs. Let them make a choice. Avoid the temptation of helping them out or giving them an advance (a debt). These are things which set a wrong example.
Instead, teach them to track their expenses and make a budget. If they have a large expense coming up, set up a sinking fund for them.
SAVING – Pay yourself first.
If there is one financial skill teenagers must learn, this is it.
Have a rule that they must put away 10% from every pay check, every allowance, or every birthday check from the grandparents. Come to an agreement what they can use this money for – college, an emergency.
Keep this money aside, in a separate saving account.
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This is a good time to show him the power of compounding. Use an online calculator to see how much his money will grow by.
BANKING – Get her an account, pronto.
Your child does not have her own account? What are your waiting for?
Many banks offer special accounts for children and teenagers. The special features of these accounts are designed to help your teen to embark on her journey towards financial literacy and freedom, while remaining under your supervision.
There are small differences in the degree of independence that your child enjoys between the accounts of various banks and account providers. Here are some things for you to think about while choosing between banks:
- Do you want her to have her own debit card which she can use to shop?
- Or, do you want her to have an ATM card to withdraw money and then spend only in cash?
- Does your bank offer pre-paid debit cards which limit spending?
Whatever you choose, it is important that your teen is learning the banking knowledge she needs.
If your child is between 13-15 years old, she should know
- the difference between a checking and a savings account.
- how to bank a check.
- understand how money makes money i.e. the basics of interest.
An older teen (15-19 years old) should know
- that a debit card is like cash but a credit card is not.
- how to write a check.
- how to make a deposit.
- concepts such as interest rates, withdrawal limits, and fees.
- pay their bills online and check transactions.
UNDERSTAND CREDIT – A beast which, if not tamed, can swallow you.
This is the time to help your teen understand the risks associated with credit cards and debt.
Your teenage is only a few years away from getting his own credit cards or even student loans. Is he prepared and ready?
It is your responsibility to help. Show him using an actual transaction. Make it real.
When it comes on the credit card statement, point it out. Take him along on the payment process. Walk him through what happens if payments are stretched out. Take him through actual costs and numbers.
With proper tools and guidance teenagers will certainly be equipped with the financial tools needed for college and the world beyond that.
How are you helping your teen understand money better?
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How did you start preparing your teenager to be financially responsible and ready for life ahead? Would love to know.
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