While schools do a great job of teaching our children mathematics, many teens graduate from high school without a lack of understanding about how to be financially responsible. They can perform complex equations, but most teenagers don’t understand the consequences of defaulting on a credit card or how to get the best rate when applying for a car loan.
As parents, we want to raise competent, independent adults. By teaching them to be financially responsible from a young age, we can help them avoid the common mistakes that many make as adults.
4 Ways to Teach Financial Responsibility to Teenagers:
Here are a few tips for effectively instilling financial responsibility in your teenagers:
1. Get your own finances in order.
If you aren’t good with money, trying to teach your teens financial responsibility isn’t going to be easy. Be open with your teen about the mistakes you have made in the past. Show them that you are working to fix them. Make sure they comprehend the consequences you’ve faced as the result of poor money management to help them realize they don’t want to make the same mistakes.
2. Teach them to budget.
Whether you are bringing in $1,000 a month or $1,000 a day, creating a budget and sticking to it is highly beneficial for developing financial responsibility. Unfortunately, many teens head off to college or into the real world without learning this important skill.
To help familiarize your teen with the idea of budgeting, have them keep track of any money they receive and any they spend for an entire month. Go over these numbers to help them realize just how much the cost of a new hoodiehere or a movie ticket there can add up. Encouraging teens to bargain shop and price match products is also a great way to encourage budgeting.
As part of their budget, ask them to start saving for a big-ticket item. Whether it’s the latest pair of Nikes, a concert ticket or even a car, help them create a plan for saving the amount that they need. Have them go over their list of expenses and figure out what they could forego in order to save for the purchase they really want. This will help them understand that it is sometimes necessary to give up one thing to be able to afford something they want more.
3. Treat allowances like paychecks.
Giving your teen an allowance can be a great way to teach financial responsibility. Make them work for their allowance—and provide opportunities for them to earn more. Decide whether they will be paid weekly or bi-weekly, and stick to that schedule. After all, it’s pretty rare for an employer to pay someone early just because they need extra cash to go to a movie.
When you give them their allowance, deduct a percentage for family taxes, a percentage for charitable giving, and a percentage for savings. This practice helps teens understand the value of working for their money. It also prepares them for the reality of having taxes deducted from their paychecks when they start working.
4. Teach them to avoid credit card debt.
As soon as your teen turns 18, if they apply for a credit card, they will likely be approved—even if they are still in school and not working. With just about every store offering its own credit card, it’s easy to rack up hundreds—or even thousands—of dollars in debt.
Credit card interest rates for teens are often well over 20 percent, which makes it extremely difficult for them to pay off debt, particularly since many young people are either unemployed students or only working part-time at minimum wage.
Having a credit card and being able to buy a video game that they don’t have the cash for may seem convenient. But as a parent, it’s your job to let them know just how easy it is to get in over your head with credit card debt. Make sure they understand how interest works. Show them exactly how long it would take to pay off a relatively small amount when only making minimum payments. Credit cards can be quite beneficial, but when used irresponsibly they can lead to financial ruin.
Teaching teens financial responsibility isn’t always easy. But doing so could save them from a lot of problems later in life.