Like most other aspects of child development, financial literacy is something that parents should consider inculcating right from an early age. It is your responsibility as parents to help kids learn money management skills, and position them to make informed decisions before they head to college.
The foundation for fiscally responsible adults is laid in childhood, more precisely, as teenagers. Apart from the dreaded “birds and the bees” talk, showing them the ropes of saving, budgeting, and investing their money wisely is an essential stepping stone into adulthood.
Let us discuss a few ways to teach your teens some money smarts that would continue to pay off all through their lives.
1. Set Them Up With A Bank Account
You can ensure a balance of freedom and supervision by opening a teen checking account with a joint holder status that gives you full access, while letting them manage their accounts online, or through a smartphone.
There are a number of online banking services that provide low balance accounts with little-to-no fees. Ideally, you should opt for an account that allows for the creation of vaults, or pots, to set aside money for different goals.
Such vaults and savings accounts usually come with attractive interest rates, which should overtime help hardwire your teen into saving money. One such example is the SoFi savings account interest rate of 1.25% APYs even for low balance accounts.
2. Give Them Debit Cards
Next, consider giving them a debit card linked to their accounts. This will not only minimize the need to carry cash everywhere, but also helps you keep track of your teenager’s spending.
Debit cards are convenient, and help in better tracking, and analyzing expenses, which can be a further source of motivation and accountability to steadily alter spending habits.
3. Foster A Savings Mindset
Learning to save money will help your kids better prepare for everything, from college expenses and emergencies, to special purchases and retirement. Teach them the value of saving, and make a budget with them to discuss how much they can put aside each month.
Ask them to prioritize needs over wants, and explain to them why it is worth giving up something to meet their long term goals. Overcoming instant gratification is key for enduring financial success.
4.Teach Some Basics of Insurance
Understanding the concepts of risk, uncertainties, and their mitigation with the help of insurance is another cornerstone of good money management. Giving them a brief overview on the workings of insurance, premiums, and deductibles should help set the stage for responsible planning.
You can even throw in some horror stories of bankruptcies and even homelessness resulting from medical emergencies, and accidents, to better inculcate the importance of insurance.
5. Explain The Significance of Credit Scores
A figure that is likely to determine the course of adult life for most individuals, more so than even GPAs, and test scores, is their credit score.
Every facet of adulthood, whether it is borrowing money, buying a house, or even renting one, is influenced by this one score, making it critical for teenagers to have an understanding of its workings. You can include all that goes into determining credit scores, such as outstanding debt, credit card balances, late payments of bills, etc.
6. Talk About Debt & Its Consequences
Teenagers should know about the true cost of their college education, even if they aren’t the ones paying for it. This makes them better value the sacrifices made on their behalf, without taking it for granted.
In some ways, students who graduate neck-deep in student loans are fortunate to have a first hand experience of what a debt burden looks like. This sets them right early-on in their lives, leaving them better prepared as they make their way through adulthood.
Educating your teens about money management and finances is not something that can be done through a crash course. It is often a long-term effort on your part, as they transition into adulthood.
Moreover, talking about these things is not enough; it is important to practice the skills yourself and set a good example for them to follow.