As a parent, you’re tasked with helping your teenagers to navigate the many challenges that come their way during this formative chapter of their lives.
One such issue is the matter of money management; instilling good habits can prepare them for financial independence as they enter adulthood.
Here, we explore five practical methods to help your teen understand the basics of credit, savings and other key financial concepts.
Explain The Basics Of Credit
Credit is a useful tool for financial management, but only when it’s used effectively; for those naive to its risks and consequences, it can soon create more problems than it solves.
To set your teen on the path of success, start by breaking down exactly what credit is and how it works.
Though there are various forms of credit, from credit cards to store cards to loans, credit essentially allows us to borrow money now and pay it back later, usually with interest added.
Real-world examples can help make the concept more relatable, and you should consider walking your teen through your own credit accounts for clarity.
If they have a student loan, it’s important to cover how this is quite different from most other types of credit, which likely come with stricter payment deadlines and minimal monthly contributions toward the debt from the outset.
Better still, discussing finances with your teen before they take out a student loan can help them understand other ways to save for college or fund their education.
Be sure to cover how interest rates work, the importance of paying bills on time, and the difference between good and bad debt.
Knowing the consequences of failing to repay debt is essential for long-term financial health and to avoid any legal repercussions.
Set Them Up A Bank Account
A bank account is an essential part of any adult’s life, but it can also be a hands-on way for teens to learn about money management.
Many banks offer accounts specifically designed for teenagers, often with the option of imposing parental oversight and controls.
Get your teen involved in the process by showing them how to use online banking features, explaining overdrafts and the consequences of going overdrawn, and demonstrating how to set up standing orders or direct debits for when they want to start taking ownership of their expenses.
Discuss Budgeting
This is a great time to discuss budgeting – the key to financial stability.
If they already have an income, you could introduce your teen to budgeting apps like Mint or YNAB (You Need A Budget), which can help them track spending, set financial goals, and understand where their money is going easily.
Keeping the conversation open and non-pressuring as they set up the app and input their income/allowances, categorize expenses, set limits and review monthly spending reports to adjust their budget is the best way to help them begin their financial journeys positively.
For many teens, educational videos on popular social media platforms may be an appealing way to learn about money, so be open to exploring multimedia resources to support your message.
Talk Through The Impact Of Credit Scores
Credit scores are important and can impact many areas of adult life, from employment opportunities to loan offers.
Showing your teen how various actions, like paying bills late or maxing out credit cards, can affect their score is key to avoiding financial trouble down the road.
You could use free online tools to show how credit scores are calculated, discuss the long-term effects of a low credit score, and encourage them to check their score regularly when they are old enough.
Role-Playing Scenarios
Finally, creating role-playing scenarios is a great way to teach teens practical financial decision-making.
For example, you could simulate buying a car with a loan or applying for a credit card. Other ideas include challenging your teen to decide between paying off their debt versus saving for a goal, or simulating a shopping spree and discussing needs vs. wants.
If your teen has never had an income before, it can be difficult for them to practice impulse control and value saving money.
Being kind and gentle in your approach is always going to win here – you want to come across as supportive rather than controlling.
A Rewarding Experience
Teaching your teen about money can be a rewarding experience for both of you.
By setting them up with practical knowledge and tools, you’re giving them the foundation for a financially stable future and equipping them with tools that will help them succeed for the rest of their lives.
Hopefully you’ve learned a few practical ways to teach your teen about money.
If you have any comments, questions, or suggestions leave them down below. Thanks for reading!
