Whether your teen has mastered the basic skills of managing their allowance or has had little practice handling money at all, the teen and college-age years present the perfect opportunity to teach your child healthy financial habits to last a lifetime. They will be confronted with more complex scenarios, like managing a larger allowance or income from a part-time job, deciding on a college to attend or handling credit cards.
The teen years demand your attention and thoughtful instruction to ensure your children understand how to manage money. Here are some of the key conversations you should have with your older kids.
1. Teach Your Teen Advanced Budgeting
By the time your kids reach their teen years, they may have had some experience managing money. Perhaps you gave them an allowance and taught them how to consistently give, save and spend certain portions of it. If so, you’ve laid a strong foundation to build on.
From there, teach your teen advanced budgeting. First, ask your teen to keep a spending diary, one that tracks every purchase they make, down to the pack of gum they bought. Do this for two months. Second, analyze the numbers. How much does your teen spend on nonessentials every month? What purchases does she still value? Which ones could she cut? Using this data, ask her to make a list of specific ways she will curb her spending. Revisit these goals monthly and adjust as needed.
If you want to take it up a notch, consider giving your teen even more financial responsibility. Instead of dolling out a weekly allowance, give them an entire month’s allowance upfront. This will teach them how to make their money last the whole month.
When your teen struggles – and he will – talk him through the process, but don’t bail him out. If he spent all of his money at the start of the month on junk food and comic books and therefore couldn’t afford to go to the movies with his friends at the end of the month, ask him to make a list of everything he would want to spend money on that month and then prioritize. Your teen will learn how to live on a limited budget and come to understand what he truly values.
2. Talk about College
Begin speaking to your teen about college early on. Be open about how much it costs, how much the family has set aside, how they can earn income at a part-time job to help offset this major expense, how they can turn to scholarships and financial aid for help and how college – both the degree and the debt – will impact their future.
There are many handy online tools to help drive home the impact. Many college websites have a “net price calculator” that includes expenses in addition to tuition. You can use the college score card to compare the return on investment of each college.
3. Credit Cards
Once your teen turns 18, the credit card applications will start filling up the mailbox, and the temptation to apply for one will be strong. Have a frank conversation about credit cards. Explain that a credit card is not free money and you should only use one if you can pay off the balance in full each month. They may not know that when you carry a balance, compounding interest rates accelerate the growth of debt. From there, credit card debt can impact your credit score, which can effect your ability to buy a home, buy a car or even get a job in the future. By laying out the domino effect of mishandling this tiny piece of plastic, your teen will better understand the weight of responsibility that comes with a credit card.
If they are going to get a credit card, advise your child to get a no-fee credit card, with a low interest rate and low limit – $500 is a good place to start. And of course, make sure they are earning an income that will allow them to pay off the monthly balance in full.
All of these conversations give you the opportunity to impart your own financial values. You can talk about the importance of a high-quality education, about how experiences with those you love last longer than buying something, how most products don’t bring lasting joy and how healthy financial habits will set them up for a brighter future. In all of these conversations – about budgeting, college and credit cards – you are teaching your teen to prioritize the important things in life and be grateful for what they already have.
This post is the second of a two-part series on money conversations with your kids. Read part one, “Money Lessons for Young Kids and Tweens” here.
Image via Santa Monica College Bookstore
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