How do I teach my teenager about money management?

You rely on the school to teach your children the basics of math, science, and current events. Life teaches them other things, like not to touch a hot stove and that young love doesn’t last forever. But there are some lessons that are best learned outside of the classroom and with parental guidance. How to manage finances is one of these, and it is your responsibility as a parent since teaching teens financial responsibility starts at home and to make sure your offspring has an understanding of how money works before they leave the nest. So how do I teach my teenager about money management?

Modeling Money Management

Before you sit down with your child and start spitting out information about credit cards, scores, interest rates, and debt, model responsible money habits. Let them hear you and, if applicable, your spouse, make financial decisions together. 

When you go to buy a vehicle, for example, have your teen sit with you as you discuss a budget, trade-in value, and down payment. In this example, you’ll want to dig a little deeper into the overall cost of car ownership. This includes everything from regular maintenance to the cost of vehicle insurance, which, you should also explain, is much higher for young adults and seniors outside of the 30- to 69-year age bracket. You’ll also want to discuss safe driving habits and how they factor in the cost of driving. The more tickets you have, the higher your premium. Plus, speeding tickets can set them back $300 or more.

And although it may seem a little unconventional, discuss your decision to purchase burial insurance — or your decision to purchase burial insurance at some point in the near future. Unlike life insurance — be sure to discuss this with them as well — burial insurance will help take care of any final expenses, including funeral costs and some lingering debts. By explaining burial and life insurance, you’ll help them understand the importance of planning for the future, regardless of how morbid it may seem.

How Credit Works

Keeping with the vehicle purchase scenario, take them to the dealership finance office with you. This will provide you an opportunity to discuss everything from interest rates to credit scores. As Experian explains, your credit score is a number used by lenders that illustrates potential credit risks; ideally, yours will fall somewhere between 700 and 850. Explain to the kids that anything lower than this means you will likely pay more overtime for the same vehicle compared to somebody with a high credit score. Your children will need to understand how to keep their credit score favorable. Let them know this starts with paying their bills on time and not overextending their debt-to-income ratio.

Banking

Another area where you can instill positive financial habits in your children is by taking them to the bank to open an account. According to Consumer.gov, when most people think about banking, checking accounts are typically what they envision. However, banks also offer other products, including savings accounts and credit cards. Many banking institutions offer accounts specifically for minors. When you make a deposit, your child will be given a bankbook and possibly offered checks or a debit card. Ensure they understand that this paper or plastic is a representation of the money they already have. It might be a hard lesson, but it’s okay to let them attempt to make a purchase and get declined; that’s often what it takes to grasp the concept.

Making Your Money Work

Spending habits are not the only thing that contributes to financial responsibility. It’s also a good idea to talk to your children about earning and saving. Middle-school-aged and younger children should be given an opportunity to earn their own money, which they can take to the bank to save or to spend. Remind them, however, that the more cash they let go of, the less likely they are to be able to afford something they really want, such as a new game system or, for older teens, a car. If you want to dive further into the earning/saving lesson, you can set up a mock 401(k) system for your child, where you match a small percentage of everything they save. 

If you have asked yourself how do I teach my teenager about money management. The answer is to start simple! You can’t rely on others to teach your teen financial responsibility because teaching teens financial responsibility starts at home!

Use the tips in this post and as your teen learns and grows you can teach them more since there are many other lessons your kids must learn. Things like paying bills, creating a household budget, and other aspects of financial maturity can also be modeled, but only time and experience can fully equip a teenager or young adult with the skills they need to become responsible spenders and savers.

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