By Nicole Campbell
Many of today’s parents grew up in households and schools that did not talk about money or include children in discussions about the incredibly important principles around personal finance. Without this essential education, young adults are prone to encounter financial instability as adults by making uninformed decisions, some with severe consequences.
As a parent, I have experimented with different ways to teach my two children about money. I learned that if you start early enough (preschool/kindergarten), by the time young children reach their teens, they will understand basic financial principles from which to build upon. This takes energy, time, candor and a well-thought-out strategy, but a well-rounded financial education can be one of the greatest gifts they are given.
To that end, I have compiled various foundational topics by age group from early childhood to college-bound teens. Following are 20 tips that lead to good financial habits for teens age 14 to 18. They are divided into five personal finance categories, but one suggestion applies to all of them: Give your teens plenty of opportunities to learn about money, experiment with spending and appreciate saving. It’s better to practice now with your guidance than when they go off on their own to college and are faced with making money decisions in the real world.
Bills, Budgets and Money Management
- Emphasize that managing money is a huge responsibility for which they must prepare. Explain cash flow and budgeting by tracking how much money they spend and earn (part-time job, allowance) and whether money is spent wisely on items and experiences that are still important the day after they are purchased.
- They will likely need assistance planning for expenses when they no longer live at home. Make a budget spreadsheet forecasting various expenses (monthly, quarterly, semi-annual, annual) they will incur living on their own.
- Discuss taxes and insurance, including different taxes (federal, state, city, sales, and property) and the most common types of insurance (health, auto, home, life and disability).
- Have them assist you when you pay monthly bills, pay credit cards every month and balance the checkbook (theirs or yours). Use this opportunity to discuss assets, liabilities (debts) and net worth and how they relate to each other.
Credit Scores, Credit Cards and Credit History
- Describe the dangers of credit cards and their marketing traps, especially those that attract young adults. Make sure that they understand that it is essential to establish a healthy, responsible credit history.
- Suggest that the number of cards open at one time should be limited to one or two credit cards (main and backup – paid off monthly, if used at all).
- Avoid teaser offers at stores that offer discounts on the day’s purchases by opening a store credit card, avoid accepting any of the credit card offers that are sent (by mail), ignore current credit card offers for cash advances and shred any checks sent by credit card companies.
- Explain credit score rankings, discuss the importance of maintaining a good credit score and learn the determinants of a credit score. Discuss the three credit bureaus and the consequences of poor financial management.
Saving and Investing
- Start building an emergency fund in a savings account for any surprise expenses (this avoids the danger of using a credit card as a backup plan). This should come before the teen decides to start investing or make any large purchases (such as a car) and will come in very handy when a teen sets out on his or her own.
- Dive into the topic of going to college, such as how much it costs, how your family plans to pay for college/graduate school, the importance of good grades, scholarships, aid and grant money, taking out loans, negotiating tuition costs and 529 college saving plans. A good rule of thumb is not to take on student debt of more than the average of your 10-year expected annual salary after graduation.
- Explain why people should start saving for retirement as soon as they have their first job. For an example, use your own retirement account, including how much you save each month and why you choose to save there.
- When starting to invest, stress the importance of automating savings and having an investment approach you can stick with for the long term.
Goals and Goal Setting
- Show your teens how you have planned for the future and how you have achieved specific goals.
- Discuss the power of setting short-term and long-term goals, even if long-term goals like retirement seem very far away.
- Contemplate potential career choices and the associated expected future earnings.
Family Time (Discussion Topics About Money)
- Control Is a Confidence Builder: Discuss how being in control of their money can result in much more stability, confidence and wealth for their lifetime.
- Decisions Are Learning Opportunities: Give examples of instances when you could have made better decisions and what you learned from the experience.
- Welcome to the Neighborhood: Discuss the complex decision of where to live, including city vs. suburb, rent vs. own and the costs and benefits associated with each choice.
- Protecting Personal Information Is Important: Talk about protecting identity, the reality of hackers and information breaches, why no one should give out their personal information, establishing complex passwords, avoiding using public Wi-Fi and avoiding clicking on unknown links in emails and on the Internet.
- Town Hall Forum: Ask everyone to bring a question to pose to the family. If they stump you, do the research together to find the answer and show them trustworthy ways to search and find sources online.
You should periodically revisit topics you’ve already covered to build confidence and reinforce their understanding, while keeping them fresh and current. Following even some of these tips will keep the conversation going as your teens become adults so they feel comfortable involving you in their successes and setbacks. They will still need your wisdom far into adulthood.