Do you have a teenager at home? Are you worried that he or she doesn’t have all the money skills needed to stay out of financial trouble after leaving the house? You are not alone. Many parents worry about teaching money skills. Teens can get themselves in a lot of financial trouble in no time at all!
Before your teen leaves home, here are 3 money skills to teach so you know your child can be the “boss” of his own finances.
Teen Money Tip #1: Budget Like a Boss
One of the most essential money skills teens need is to understand how to budget. The temptation of a concert ticket, midnight pizza run, or hot new clothing item is not only real, but also a fast way for a teenager to run into debt.
If your teenager has an after-school job (or is looking for a job), walk them through a sample budget (like this one we made) so that they can see what they would really need to make if they didn’t have your financial support.
Write down how much money they are making (post-tax of course!), and then start subtracting out hypothetical expenses like rent, food, and car maintenance. Once faced with the prospect of not making rent, your child will very quickly learn to think twice about spending money on “wants” over “needs”.
Teen Money Tip #2: Save Like a Boss
Tied in with budgeting is saving. Teaching your child to save money for emergency situations and for large expenses will help them once they leave home. Emergencies happen all the time- cars break down, a flooded bathroom ruins wardrobes, and jobs get lost. By brainstorming realistic situations where having rainy day fund would be useful, your teen can have a tangible sense of why a savings fund is useful. As your child develops his budget, he should target saving 15% of his post-tax income.
Emergencies aren’t the only reason to have a savings fund. Saving money can be for fun too! Does your teen want a new electronic device? Work with him to develop a plan for how much to save to be able to buy it himself. Tweak the numbers and show that the more they save now, the quicker they can get to their goal. Watching your teen reach their financial goal will be satisfying for both you and your teen.
According to a 2015 survey published by America Saves, first time youth workers aged 16-19 know it’s important to save, but don’t know how. By taking the time to teach your teens how to determine how much to save and how to set up automatic deposits into their savings account, you can help your child learn the habits needed to build a solid savings account.
Teen Money Tip #3: Build Credit Like a Boss
Among the most important money skills teens need is to know how to build good credit from the very beginning.
Building credit can be confusing for adults and teens alike. Many teenagers believe that they can build credit just by using checks or debit cards. This is not true. The only way to build a positive credit history is to use credit wisely.
Starting with a credit card that has a low limit and low interest rate, consider opening a credit card with your teen. Walk through the mechanics of a credit card and a credit card statement. Help your teen understand that by demonstrating continuous responsibility with a credit card, they will develop a strong credit score, which in turn will demonstrate to future lenders that they can responsibly handle additional debt.
This advice is given with caution: only steer your child down this road once you’re confident that he’s mastered budgeting and saving. Your child needs to understand that not paying off debt can lead to a damaged credit record that can take time to fix. Even if you don’t think your teen is ready to have a credit card of his own, consider walking him through your own credit card statement and teaching him the ins and outs of what the statement means and how to use the card responsibly.
The Last Word On Teens and Money
You’ve done everything you can to get your teen financially ready for when they leave the nest for good. No doubt, your kid will make mistakes – but with the money skills you’ve been teaching, they will enter the world with knowledge and more financial confidence.
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This information is intended for informational and educational purposes only and not as legal advice. If you have concerns about your credit report, harassment, identity theft, illegal collections activity, garnishments, or property liens, you should consult an attorney who specializes in consumer rights and defense.