It's time to teach your teen the many ropes of adulthood! While the list may be a long one, it's essential to include proper money management. By teaching teens these essential money management lessons, you'll rest assured knowing you've given them the tools to earn, save, and spend their money wisely.
Creating a Budget
A budget serves as the foundation of proper money management and should be one of the first lessons you go over with teens. The easiest way to do so is with a zero-based budget where all expenses are listed until the total for the month reaches zero. This type of budget will be much simpler than your typical household budget, mainly focusing on any money they make that will either spend on their wants and needs or save for their future. Start this process with a family rhythm of sitting down and setting up a monthly budget for at least a few months and then checking in once in a while when you are confident, they can create one independently.
Set Up Bank Accounts
Setting up a teen's first bank account is just as much a rite of passage as the day they get their driver's license. The best way to ease into this is to set up a personal checking and savings account; you can sign on as a joint account holder depending on your trust level with them or the account regulations. Once set up, it is crucial to explain the difference between the two accounts; the checking account is essential for their daily spending via their debit card and the savings account for future goals. As a joint account holder, you will be able to manage and monitor their account, but it is best to do so from a distance, checking in on them occasionally. In either case, they will have access to mobile banking, where they can monitor and manage both accounts through their smartphone.
Understanding of Credit Best Practices
Many teens don't understand the concept of credit; therefore, they may lean too heavily on it as young adults. By doing so, they can quickly damage their credit score and dig themselves into a hole by the time they reach their twenties. This hole refers to a damaged credit score which can affect their ability to qualify for apartment leases, auto loans, and lower insurance rates, as well as any money going to interest payments that could've gone to saving for their future. To avoid this situation, explain that interest can cause a purchase to grow increasingly more expensive over time. Another excellent teaching method would be to share your credit card or auto statement and discuss the implications of using too much credit and paying high interest.
It is essential to encourage teens to earn their own money, whether it's chores around the house, mowing lawns, or working at a local business. Teaching the relationship between hard work and earning money will help ease into the mindset of wisely spending, saving, and budgeting their money and lessen any urge to make impulse purchases. This is especially true if you have them use some of their earned money to cover more minor expenses such as cell phone bills, gas, or clothes. Having them cover some costs (no matter how small) will make their transfer into young adulthood that much easier.
Create Savings Goals
No matter where their money is coming from, encourage teens to pay themselves first by setting an amount aside for their own savings goals. Whether the college decision is approaching, they want a new car, or they have another big purchase in mind, teach them how to set specific goals and the deadline they need to meet that goal. For college savings, discuss the concepts of balancing cost and benefit to get them thinking of how much they need to spend and save for school based on their career choices. Another significant aspect of savings goals is retirement. While it may be a little early for teens to retire, discussing and setting up a way to save for retirement will not only benefit them down the road but teach them the value of saving early to have even more money in the long run.
Ready to open your first bank account? Our selection of checking and savings accounts combined with our mobile banking services are perfect for teaching your teen the ins and outs of money management! Contact us today to get started.