There are many things you need to teach your teen before they’re ready to venture into life as an adult. But perhaps the most important thing to teach them is money management. Money is a central part of life, whether you use cash, checks, or cards. Without money, you can’t keep a roof over your head, food in your stomach, or clothes on your back. Therefore, you need to teach your teen about how to set up a bank account, how to be responsible with their money, and what things they didn’t know they needed to budget for monthly. These are some of the best ways to teach your teen better money management to help them have a successful financial future.
Set Them up With Their Own Bank Accounts
Giving your kid their own checking and savings accounts can be one of the easiest and most effective ways of teaching them money management. Set them up with a free checking account and teach them how to write checks, use a debit card, and make deposits and withdrawals at the credit union as well as through ATMs. Explain things like overdrafts, stop payments, and other things they need to know, then let them take control.
It’s not a bad idea to add yourself as a joint account holder. While the free checking account won’t cost your kid, mistakes they make might. You can help head off mistakes if you can see them coming instead of waiting for your kid to come to you after it’s happened. Plus, it can make transferring money to your teen easier. Additionally, it can give you some oversight into how much they are spending and saving each month and what they are spending their money on so that you can gently guide them in a different direction if needed.
Give Them a Paycheck
One option is to have your teen go get a job. A weekly or biweekly paycheck is a great way to manage money and help them learn how to spend responsibly on gas, car payments, fun with friends, etc. But if your teen isn’t quite old enough to get a job or you’d just rather they didn’t work right now, you can give them a paycheck yourself. To do this, you stop paying for basics like gas, clothing, personal hygiene, etc. Instead, you give them a set amount of money once a month or once every three months to cover those expenses.
It’s up to your teen to manage that money and make it last until the next “payday.” This can be extremely beneficial for teens as it teaches them not only how to manage their money but also shows them how expensive their tastes can be. They learn to set their own priorities about what they truly need versus what they really want.
Give Them a Crash Course in Insurance
Money management isn’t just about managing the money that’s in your hands (or your bank accounts). Money management is also about figuring out how to pay for things that tend to be very expensive – like damage or injuries in a car accident, for example.
Since most kids will drive before they own a home or get their own health insurance, start by teaching them about auto insurance. Show them the policy, explain the coverages and what the premium is. Talk about deductibles and how that’s money out of your pocket before insurance pays and how to know whose insurance pays what. It can also be helpful to make them responsible for a portion of the deductible if they’re the one that causes an accident. It may make them not only more money savvy, but also a safer driver when it’s their own money on the line. The more familiar your teen is with insurance terms and spending, the more prepared they will be in the future should they need to find insurance on their own or use it for coverage at some point.
Teach Them the Basics of Credit
Credit cards, car loans, mortgages – they all sound like easy ways to get what you want. But many young adults end up in deep financial debt because they overspend using credit without considering how they’ll eventually pay for it. And their debt doesn’t end with the bottom line balance on a bill. A low credit score caused by mismanaged credit means more money going toward interest on that debt and less toward their savings or other things. It can also lead to higher interest rates, higher insurance premiums, and even problems qualifying for things like apartment leases.
Teach your teen how credit works, including how interest is charged and collection agencies. The more they understand, the more responsible they may be. If your teen is particularly responsible, consider giving them a credit card with a low spend limit to use for things like gas that they can easily pay off every month. This will give them a good introduction to how credit cards work while helping them also build some good credit in their own name.
Money management is a critical life skill. It’s one that’s often glossed over in school and can be missed by parents if you aren’t careful. Take the time to give your teen a good foundation in money management so they can have a good relationship with money throughout their lives and go on to have a successful financial future.