Updated: Mar 19
Proper teaching of your children on money issues will shape their future attitudes towards money and help them avoid incurring expenditures on unnecessary things.
You'll get in-depth information on ten things to teach your teenagers about personal finance in this guide. Let's have a look at them!
Although your teenagers may not work, they may be getting money from allowances or holiday gifts. It's crucial to educate them on how to save money for future needs. For instance, advise them to forego immediate pleasures, such as buying sweets, toys or games for more significant purchases like educational trips.
Saving goals vary depending on a child's age and education. For instance, your 5-year-old kid may be keeping some coins to buy a toy. However, an elementary school child's saving objective could be for something significant like a field trip.
Here are the tips on how to enhance your teenager's saving habits.
• Help your kids manage their short and long-term saving goals. For instance, they may use charts to determine the extent of achieving their goals.
• Let your child open a saving account with a bank that doesn't charge a fee, especially for children under 18 years. Below are banks that do not charge fees monthly:
- Ally Bank
- Discover Bank
- Capitol One 360
- Axos Bank
- Varo Bank
• Ensure that there is restricted access to your child's savings until a certain period elapses.
Budgeting is one of the best strategies for financial management. It is essential to help your child create a budget based on their incomes and expenditures. Matching your children's earnings with expenses is an excellent way of enhancing the prudent use of funds. More importantly, help them review their budgets monthly to ensure that they are on track.
Let your child understand basic budgeting concepts, such as needs, wants, income, expenses, and goals. Once you set a budget, it is vital to stick to it. Tracking expenses is one of the best approaches to staying within your budget. You can track your expenses in several ways. For example, you may write your daily expenditure on a note or keep records on a computer.
Related Article: The Envelope (Budget) System
Investment in Stocks and Bonds
Children can be taught different investment skills based on their ages. For instance, teenagers who learn investment basics are more likely to become good financial managers than those who don't. Teach your children about investing in the stock markets through diversified-life cycle funds. Also, let your children understand the returns and risks associated with investing in securities.
Before your child decides which company to invest in, let them select the best-performing companies they are interested in. After that, go through their choices and choose based on their past five years' performance. It is critical to allow your child to make investment decisions and take real risks. Let them know that sometimes, they will lose or gain money from the investment. Also, educate them about the circumstances leading to investment gain or losses.
Related Article : Top Penny Stocks To Invest in 2021
Set up an IRA
Individual Retirement Accounts (IRAs) can be an excellent saving tool for teenagers. Your child can make contributions to the IRA as long as they have earned some income.
Help your children decide whether to open the traditional IRA or the Roth IRA. Note that with the traditional IRA, you pay taxes upon withdrawal of money at your retirement. However, with a Roth IRA, you pay tax when you deposit money into your account.
Note that the Roth variety is preferable, as it favors those who'll be in a higher tax bracket later in life.
Setting up a Roth IRA is an important thing you can do for your kids financially. Therefore, start paying your children to work for you or gift them some money to invest in a Roth IRA. Both Fidelity and Charles Schwab provide custodial IRAs for children which have to be opened by a parent or guardian.
Your children need to understand that it has to be repaid with interest once a loan is taken. Financial management must begin at home with open communication between parents and children.
Ensure you teach your children about debt management basics, such as loan requirements, credit ratings, credit reports, loan repayment, etc. This way, you will make them understand how to manage credit.
Advise your teenagers about credit scores and how to improve credit rating. More importantly, teach your children how to stick to the budget, especially when using their pocket money. You can also go the completely debt free route as well. Dave Ramsey has an awesome book on being completely debt free and budgeting called The Total Money Makeover.
Related Article: What To Ask Before Hiring A Financial Advisor
Where possible, it is essential to support your children to starting earning money if they can. If your child helps you to do some household chores, you may consider paying them. This way, they will be able to accomplish their saving goals.
You may also support your child to work outside the home on a part-time basis. Such jobs will help your children to earn income, build skills, and prepare for future employment. We have some ideas on how your child can earn extra money in our 7 Ways To Earn Extra Money article.
How to Spend Money Wisely
Learning how to spend money responsibly is vital for your children. There are various ways you can use to make your children spend money prudently. For instance, don't hesitate to encourage them to plan for their weekly costs, such as fares, lunch, and social activities. During birthdays, give your children money to buy what is needed for the occasion. This way, they will learn to avoid the misuse of funds. Also ensure money that is received from family that they at least save 50% of the money and keep the other for spending.
Managing an Allowance
Children will misuse the money when they know that it belongs to their parents. However, if the money belongs to them, they are likely to use it wisely.
Therefore, a great way to teach teenagers about finances is by giving them an allowance. Advise your children on the best ways of spending and saving the allowance.
If you want your kids to live within their means, keep the allowance dispersed monthly instead of weekly. This will give them adequate time to learn how to spend the money.
Time value of money
It is critical to let your children understand that early saving can make them reap big rewards. This will make them adopt saving habits and avoid instant gratification. Note that children who start saving early are likely to earn more compound interest after some time. Consistently highlight that the more money the save or spend wisely the better off they will be once they move out or a car they can purchase.
Demonstrate Good Financial Behavior
As a parent, it is essential to exhibit good financial behavior before your children. For example, ensure you pay your bills on time and live within your means. This way, your children will embrace sound financial practices.