Whether your teen is starting his first job or he’s just starting to think about making bigger purchases on his own, it’s important to take the time to help him better understand and manage money. Here are four tips to help shape your teenager’s financial behaviors, and put him on the right path toward a sound financial future.
Create a Budget
Start by helping your teen set up a budget that shows how much money he’s making at a job and how much should go to savings and spending. If your teenager doesn’t have a job yet, try giving him a set amount of money for a specific purchase, such as school lunch for the month. This is a good way for him to practice budgeting. If he buys something else and suddenly has to make lunch at home, he’ll quickly understand the true cost of his spending.
Another way to teach your teen about budgeting is to show him the family budget, and how you pay the bills and make ends meet each month. Having your teen watch you pay bills from start to finish will give him a real-world example to follow.
Develop Savings Habits
To teach your teen how to save, encourage him to start putting aside a small amount every week to save for a larger purchase, such as buying a car. Have your teen put a certain percentage of her money earned (5 or 10%) into a separate savings account. If his employer offers direct deposit, show him how to set up an automatic transfer of funds from his paycheck. You can add further encouragement by offering bonus money that you’d add to the account, based on what he saves each month. When your teen decides what he wants to save money for, work with him to set a weekly or monthly saving goal.
An automatic savings app is another good way to help your teen save because he can see his money being saved in real-time. Quality apps can help him set savings goals and offer alerts for automatic deposits.
Good debt is an investment that will grow in value or generate long-term income. Taking out low-interest student loans to pay for a college education, getting a mortgage to buy a home, or paying an auto loan are all examples of good debt. Bad debt includes purchases that don’t generate long-term income and quickly lose their value. Bad debt also carries a high-interest rate, like credit cards. A good rule to impart to your teen is that if he can’t afford something or doesn’t need it, she should think twice about the purchase.
Teach from Experience
Teenagers often take cues from their parents’ behavior and that includes how Mom and Dad manage their finances. To set a good example, consider including your teenager in some of your financial decisions. Whether that’s working out the monthly family budget or showing him how to save on groceries, having her interact with the process can have a profound impact on the way they handle money. Teens appreciate trust and transparency. Sharing real-life examples, experiences and financial mistakes can also be a good way to teach your teen about managing money. Keep your money conversations short and avoid lectures to keep your teen engaged.