Teenagers are faced with so many new learning experiences, that it’s hard to believe that one of the most important aspects of their adult lives (personal finance) is not adequately covered for most kids prior to their high school graduation.
More than three decades after my teenage years have passed, I find myself trying to determine what information I need to share with my teenagers. In today’s hi-tech, hi-text, super charged video game era, it’s difficult to get your kids’ attention long enough to get them to clean their rooms not to mention learn something about finances.
So after lots of trial and error here’s my Top 10 Financial Tips to teach your kids – and a few creative ways to get their attention while doing so.
- Banking 101 – Open a savings account for your child at birth and start developing your lesson plan for teaching money matters. During their teenage years open a checking account but do not give them full reign on this account. Start by teaching the basics of deposits and withdrawals using checks and deposit slips. Teach them how to reconcile the account, noting that the balance on the online system may not be their actual balance. Beware of debit cards and your teens. One common mistake made by teens is failing to account for ATM/Debit transactions resulting in an overdrawn account. If you choose to allow your bank to pay your ATM/Debit transactions regardless of the balance, you are in for a rude surprise when the overdrafts start rolling in. Banks typically charge a penalty for each transaction that bounces. OUCH!!
- Talk About Money Matters – Years ago it was considered taboo to discuss your personal finances with your kids. In today’s financial times, it is imperative that you discuss the basics and more. Making your kids comfortable with the topic starts with you getting comfortable discussing money matters first. Start with basic conversations about savings, budgeting and banking. Use your real life experiences such as bank fees that you notice on your bank statement. Share your strategy on how you plan to reduce or eliminate those fees going forward. You’ll be surprised how much children engage when you start including them in what use to be considered a “grown ups only” discussion.
- Basic Budgeting – Start teaching kids basic budgeting skills early and as they grow, progressively grow the lessons to the point of developing their own budget. Basic money management requires that you track your spending and identify where your funds are going. This is one of the biggest tips you will teach your children. This is a simple process that once it becomes a habit, will prove to be very beneficial to them over time. Be sure to teach them to “Pay themselves first”.
- Needs vs. Wants – This can be challenging because teenagers think everything they want is a need. Help them identify the basics of food, shelter and clothing (not the latest fashion). Although they may be able to get an item that they want but don’t necessarily need, make sure they understand that it should be included in their budget in order for them to be able to make the purchase.
- Credit Card 101 – Teach your kids that credit should be used with care. Help them understand how buying something they want, but don’t necessarily need, on credit now could result in acquiring too much debt leading to problems later. Use the credit card statement as a teaching tool to share the concept of simple versus compound interest. Show your teens that only about 15% of each minimum payment goes toward the principal balance and the remaining 85% goes towards interest. They need to understand that a $3,000 balance could take close to 40 years to pay off if they paid the minimum payment each month. OMG!
- Understanding Credit Scores – Most people are clueless about credit scores and how to establish and maintain good credit. Obtaining new credit can be exciting to teens and new adults. Teach them to limit their credit shopping sprees and NOT to apply for multiple credit accounts. Too many inquiries can negatively affect your score. Do not go over your credit limit on your account as this is a double ding against your score. In addition, try not to exceed more than 50% of your available line of credit. Maxing out your credit card is a no, no.
- Invest Now – Teach your teens that people have ownership in various companies such as Walmart, Xerox and the local cable stations. They can also have ownership in these companies by purchasing stock. As an assignment have them research different companies or industries of interest. Have them investigate various investment options like mutual funds, stocks and bonds that might allow them to gain ownership into some of their favorite industries or companies. Making a monthly investment of $50/month at a 6% average rate of return for 30 years could produce up to $51,000. A nice chunk of change from a relatively small investment…
- Securing Valuables – Teach your teens that their identity is just as valuable as the items or cash that they try to safe guard and protect. By now, they may be in a position to complete applications or forms that require their social security number. Explain the importance of not sharing their social security number, account numbers or personal identification numbers with others. Sometimes kids think that sharing this information with their best friend is okay. Explain that this is not negotiable. Identity theft is prevalent in today’s society and they don’t want to become a victim.
- Keep It Interesting – To help keep your teaching moments interesting consider playing games like Monopoly which teaches the advantages of owning property and shows them how their assets will start to work for them. While you’re at it, teach your teens how to make change without depending on a cash register or calculator. I can’t believe how many kids today can’t add or subtract simple figures in their heads!
- Get Allowance; Pay Your Own Way – Ever notice how fast kids can spend your money? Give your kids the responsibility of paying their own way and watch the spending decline. Allow them to earn an allowance and require them to be responsible for a bill such as their cell phone or weekly lunch money. Make sure you enforce the budgeting process to ensure they understand their role. You will be amazed how those spending habits change when the money comes from their wallet.
As adults we all want the best for our children. Ensuring that they are prepared for life is one of our biggest roles as parents. I plan to spend as much quality time as I can with my teens. The exercises above give me another opportunity to spend some of that quality time teaching one of life’s lessons.
Karen R. Jenkins is president and CEO of Integrated Financial Services, LLC in Columbia, South Carolina and principal of KRJ Consulting, LLC. She earned a Bachelor of Science in Business Management from the University of South Carolina and a Master of Business Administration from Webster University. Karen has over 25 years management experience in the financial services arena. She serves as a financial consultant, life empowerment coach and financial literacy educator sharing wisdom and knowledge that helps people achieve wealth. Karen and her husband Raoul are the proud parents of Patrice and Raoul II.
Karen’s latest book is called ‘Nobody Told Me! The Path To Financial Empowerment’. Go to www.karenrjenkins.com for more details…