Teaching your teen financial responsibility can be an intricate task. Most teens are not familiar with the basics of money management and they need guidance on how to save money and how to spend money properly. It is important to teach teens how to manage their money effectively because this will help them develop proper spending habits from an early age with a view to become financially responsible adults.
The following are good guidelines for offering financial advice to your teen.
a) Opening a savings account
A savings account allows you to deposit money and earn a small amount of interest. Depending on the bank and the type of account, you will be required to deposit a minimum balance of $25. Some banks require no minimum balance at all.
Opening a savings account for your teens is the first step to teach them how to save money each month. Explain to them that they are required to save a small amount of money every week or every two weeks from their monthly allowance toward their savings account. Even $10 every two weeks will add up to a good balance by the time there are eighteen because start saving early allows the compound interest more time to build. Most importantly, start saving money while going to school will make them financially responsible from an early age.
b) Having a budget
Budgeting works at any age, but obviously it works better at an early age. Give your teens a budget about particular spending categories. For instance, tell them they are allowed to spend $100 for clothes in October, but they cannot count on more. If they spend it all during the first week, they won’t be allowed to get more money for clothes during the same month. But stick to that rule and do not deviate. However, allow them the freedom to choose the designer. If they spend all the money in one designer and they don’t get more allowance from you, the next month they will be more cautious and they will shop carefully in order to buy more clothes with the same amount of money. Through budgeting, you help your teen become a wise consumer and a financially responsible person.
c) Getting a summer job
For most teens summer is a time for relaxation, but there are teens who view summer as an opportunity to have fun and earn some cash. So, if getting a summer job is their idea, don’t discourage them. Push them to get a job and save a small amount of money to their savings account. For instance, if they save $20 a week, in one year they will be able to save $20 x 52 weeks = $1,040, which makes $3,120 in a period of three years, without the compound interest earned each year.
Teach your teens to discover own skills and competencies for successful job search. Emphasizing their strengths will help them get a summer job they’re really interested in, but it will also enhance their self-esteem. Presenting themselves as mature teenagers with specific goals and a determination to pursue them will make them financially responsible from a young age.
d) Consider a checking account
Helping teens establish a checking account is another effective money management technique. Many banks and financial institutions offer special plans for teens, allowing them to deposit money and withdraw funds from a federally-protected account. Teach your teen to manage his or her money by making cash withdrawals from the checking account and balancing the account. You can also visit http://www.aboutchecking.net/ and show your teen how to write checks and review statements.
e) Understanding credit
Understanding how credit works and how catastrophic it can be if not taken into serious consideration is vital when teaching your teen financial responsibility. Many Americans today face huge credit card debt and this is an info your teen should know, but mostly, should understand. Explain to your teen that earning 5% on the savings account, but paying 17% on a credit card balance is not good financial management because he/she loses 12% each month for the right to earn 5%. Credit management is extremely important and should be repeatedly explained to your teen.
By teaching your teen financial responsibility, you prepare him/her for major financial changes. When the time comes to get married, buy a new house, or prepare for retirement, your child will already have a safety net. Being financially responsible from an early age always helps to effective financial planning in order to avoid overspending and debt as an adult.
Sources:
http://money.howstuffworks.com/personal-finance/budgeting/savings-accounts.htm
http://fatherhood.about.com/cs/myteensdad/a/teen_money.htm