Helping Teens Manage Money
By Matthew Martin
Our nation's teens are on their way to becoming adults and, in a few short years, many will be off to college or on their own, so it is critical that they learn to manage money wisely and develop sound financial habits. Make some time now to discuss the following financial topics with the teens in your life so they can carry good habits into adulthood.
Your teens may already be earning an allowance, but as they get older and have more expenses, they may need to look for ways to earn more money. Encourage your teens to nurture their entrepreneurial spirit and look for ways to put a skill or hobby to use to earn extra money. Making jewelry, tutoring in a favorite subject, or repairing computers might be interesting ways for them to earn money, along with other standard activities, such as babysitting, yard work or even household chores.
Once they start earning income, discuss with them the importance of saving and how investing their money can help them earn more over time. Talk to your teens about mutual funds, stocks, bonds, and other investments that will allow their money to grow, and show them how to follow news about different investments online.
If you haven't done so already, establish a savings account and make sure your teens understand the concept of "paying yourself first." Use online calculators to show how interest compounding helps their money grow. Consider matching what your teens save so they will see results faster, and encourage ongoing and consistent saving.
Goal Setting and Budgeting
Help your teens set realistic financial goals and develop a plan to help them reach them. Saving for a trip, prom or a car may help motivate them to sock money away and get in the habit of saving.
Develop a budget and put it in writing. Start by having them list all sources of regular income, and then brainstorm a list of regular expenses. Clearly communicate which expenses you intend to cover, and which expenses you will expect your teens to pay. Show your teens how FICA taxes and regular income taxes are taken out of their paycheck, or need to be set aside to pay at tax time. Finally, subtract your teens' expenses from their income. If the results show that your teens won't have enough income to pay their expenses and meet their savings goals, work with them to create a plan for making up the shortfall.
Spend Money and Using Credit Wisely
In addition to saving, it is wise to allow your teens to spend some of their money and fund short-term goals. This encourages them to view their savings accounts not as a black hole where their money is lost forever, but as a place where their money works for them. It also gives them some real world experience in learning how to spend wisely. Help your teens comparison shop for things like clothing and cell phone plans. Resist the temptation to bail them out if they spend too much and come up short.
Once your teen turns 18 (and perhaps even sooner), credit card offers will start pouring in, so it wise to have a frank discussion about managing credit responsibly. Show them how credit accounts that carry a balance charge interest and discuss the consequences of poorly managed credit.
It is important for all adults to have a basic understanding of how to account for their money. Make sure your teens understand the concept of credits and deposits, debits and withdrawals, and show them that simple addition and subtraction, along with attention to detail, help to keep accounts balanced. Show your teens how to manage a checking account, from writing a check and reading the statements, to balancing the account and handling the ongoing responsibilities of such an account. Incorporate technology and research various ledger applications available for smart phones. If you feel your teens are ready for their own checking account, make an appointment with your banker to discuss options they might offer to teens. This is a big step, but important to gain independence and provide you an opportunity to instill smart financial habits that will last a lifetime.
The foregoing article is intended to provide general information about your teen and money and is not considered financial or tax advice from Union Bank. Please consult your financial advisor.