It’s safe to say most adolescents overestimate their aptitude when it comes to managing finances. Comparable to their self-assessment of driving capabilities, the majority of teenagers assume they are above average in terms of financial proficiency.
When they reach their teenage years, young people start to understand that to acquire the things they want, they must bring home a paycheck. If they have grasped this concept, they’re successfully navigating the path towards monetary organization and stability.
Nevertheless, it’s essential to keep in mind that though they may feel like they are masters of money management, learning financial literacy is a progress that takes time. Here are five key money lessons every young person should know:
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Track Expenses with a Budgeting App
Financial literacy can make or break your trust when it comes to raising teens. Having an open conversation about money or even revealing a snapshot of your financial status greatly helps in setting financial well-being for your child. Embracing technology is an ideal way to teach your little one, or the whole family simultaneously, how to manage their cash flows with numerous budgeting apps currently available. Not only do these tools help them keep track of expenses, but also act as potential resources for independent learning about money.
Budgeting apps demonstrate incredible accuracy for teenagers when tracking their expenses. Not only that, but they also provide useful insights into the spending habits of your kids. Utilizing these revelations, and parents can determine where adjustments must be made in order to have more money set aside. Thus, these apps are invaluable for helping make sure your childrens’ money is organized properly.
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Spend Less Than You Earn
No matter how much Math your teen knows, it’s essential to remind them that always spending more than they have is a sure-fire way to end up with an empty wallet. Negative numbers are tricky to manage but, luckily, the same concepts apply when it comes to money too.
Hence, it is essential for us to educate our teens on how to practice good financial habits. We can demonstrate the value of adopting a budget and spending only what they earn, enabling them to manage payments, dodge accumulating debts, build up a nest egg, and even consider investments for their future prospects.
If your teen is looking to boost their savings, they need to create more of a space between their earnings and expenses. The higher the difference between what comes in and goes out, the bigger their savings will expand in no time.
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Save and Invest Early
Show your teen the valuable lesson of reducing expenses and witnessing the power of compound interest with high yield savings accounts. Explore the variations of interest rates and their associated Annual Percentage Yield (APY) to understand the difference between accounts and how money can grow over time.
As your adolescent starts building up their finances, it’s a great idea to have them consider investing. Show them what long-term consequences of not learning to save are and how keeping money invested over the long haul can help grow their wealth, even with only limited funds. Assist them in getting acquainted with some of the standard investment lingo and enable them to open a related account.
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Your Credit Score Matters
As younger generations enter into adulthood with access to credit cards, it is essential for them to be aware of the potential consequences of financial malpractice. Accruing high balances, late payments, and making minimum payments can negatively affect their fiscal security.
It is essential for teenagers to understand how a good credit score can bring long-term cost savings. For instance, such an impressive credit report should result in reduced car insurance payments and more desirable cell phone plans. More importantly, when they become independent and search for a place to live, their high-score will likely be an advantage in loan and rental application approvals.
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Differentiate Between Needs and Wants
This one may sound simple, but because it’s simple, it’s easy to forget. While having the latest smartphone, buying a new video game or owning a car may increase convenience and improve social interactions, these things are best categorized as wants rather than needs. One should assess their requirements objectively to ensure that their needs are met, without having to compromise on important expenses.
Your kids’ wants are an essential part of their development. Encourage responsible spending by helping them to set aside money for necessities and to create specialized savings accounts for the things they desire. Teaching teens about money and the concept of delayed gratification is a key factor in helping avoid debt-related issues in the future.
The Bottom Line
Although financial literacy goes far beyond these five guiding principles, these rules can serve as a basis for a proper financial education. Recognizing the unique challenges that come with teenage years, taking the time to promote good money management for teens will prove invaluable to your kid later in life.