With only a few years left before your teen becomes an adult, teaching them about money management is crucial. Here’s how you can put your teen on the right track financially.
1. Establish a Set Income
Your teen will never learn about managing spending if you give them money every time they ask. Ideally, you should push your teen to get a job so they’re making consistent monthly income from that. If your teen does well in school and participates in many activities, you may want to provide them with a set amount per month. Either way, explain to your teen that their monthly income is all they will get.
2. Help Your Teen Open a Bank Account
You can open either a checking account, a savings account or one of each with your teen. Checking accounts are good because your teen will have a debit card and can use that instead of carrying too much cash around. Just make sure to explain how they’ll get hit with fees if they overdraft their account.
3. Make a Budget with Your Teen
Show your teen how they can make a budget listing their income and expenses every month. This will show them how much extra money they have every month.
Budgeting is also a great time to tell your teen about an important financial concept – paying yourself first. Tell them that they should put at least 10 percent of their income into their savings every month so they can grow their money.
4. Teach Them About Smart Spending Habits
Teens are naturally impulsive and prone to overspending, but with the right guidance, you can help them spend wisely. Show them how they can find deals on items they want by shopping around online. Explain how it’s better to wait at least 24 to 48 hours if they want to buy something so they can sleep on it. This helps them avoid impulse purchases.
5. Set Short and Long-Term Goals
Talk to your teen to come up with financial goals. A short-term goal could be something as simple as saving 10 percent of their income over the next month or avoiding impulse purchases. A long-term goal could be saving $3,000 to put towards a used car or a college fund.
After you’ve done this with your teen, review their finances with them periodically. Check bank records to see how they’re doing on saving money and managing their spending. This will ensure that your teen develops the right habits.