What you need to know:
- These tips are a good start for parents who want to teach their teenager(s) about the difference between needs and wants, budgeting, saving for goals, credit cards vs. loans.
The teenage years are tough . Teens have to learn how to balance schoolwork, friends, and family life while preparing for college or a job in the future.
They also have to make their own decisions about how to manage their money.
Teaching teens how to manage their money is one of the essential lessons a parent can teach them before they get to adulthood.
Teenagers are largely influenced by trends. They want to keep up with the latest styles, which is often the primary reason for overspending.
They also want to impress their friends or make new ones by buying things they cannot afford. Things teens spend their money on include:
- Fast foods and drinks
- Concerts and movie tickets
- Trendy clothes and bags
- Skincare products and make-up kits
- Drugs and alcohol
- Teen dates
- Video games
Teens are not necessarily extravagant, but they may often spend irresponsibly.
This is why teaching them about finances is important. So how do you go about it?
Taking part in budgeting
Budgeting is a great way to teach your teens about finances. Having them help create budgets will make it more tangible and easier to understand.
Budgeting entails making a list of all the expenses you have each month and then noting what bills are due and when.
You can show them the value of money by giving them a certain amount of money and seeing how they spend it.
For example, if they want clothes, give them a clear budget specifying what items they can spend the money on.
Then, let them purchase within the expected amount. Save the balance for them.
You can do this by adding it to a savings account or investing it for your child’s future.
Saving to achieve a goal
Teaching your teens about managing their finances can be relatively simple, and you can start by introducing a culture of saving or investing.
Teens are often too distracted to even notice the importance of saving for their future.
To make it more interesting, creative, and engaging, introduce them to a goal they may have in mind (e.g., buying a phone or a laptop).
Explain how much money is needed upfront plus monthly payments over time.
So, not only does your teen know what amount will be required but also has some sense of when they can reasonably expect to make this purchase without feeling overwhelmed by its cost.
You can open a savings account for your teen and set up automatic contributions from their pay check if you have already introduced this.
If they are old enough, you could also teach them about investing in assets such as real estate and stocks.
Needs vs. wants
This may seem like a simple distinction, but defining these two terms can help form good spending habits when they reach adulthood.
A need is something you cannot live without, such as food, clothing, or shelter, while a want is an object of desire—for instance, purchasing every new iPhone model that is released every year.
Teaching your teenage kids the importance of balancing needs versus wants can help simplify their life in the future.
It also provides functional coping mechanisms for them to refer to when they face challenges at school or much later in life.
Credit cards and loans
Credit card debt can be a real burden for adults who have lived from paycheck-to-paycheck all their life.
However, when compounded with student loan debt, in addition to living expenses, this becomes unmanageable, quickly!
Teaching your teens how credit cards work and interest rates can help them avoid mistakes.
Credit card companies charge high-interest rates for people who do not pay their bills on time, which can cause debt if they continue making purchases with a balance that is due.
Furthermore, teenagers should be aware of loan scams when applying for loans online or via direct mail. There have been cases where fraudsters pose as legitimate lenders but take money from an account without authorisation.
The tips provided should give you a good start towards teaching your teenager(s) about the difference between needs and wants, budgeting, saving for goals, credit cards vs. loans.
When these concepts at an early age - whether through personal stories or games - understanding increases exponentially as your children grow.