By Kansas Living on August 10, 2022
With more money to spend and more opportunities to spend it, your teen can easily get into financial trouble. With your help, your teen will soon develop the self-confidence and skills they need to successfully manage money in the real world.
1. Being Honest About Money and Personal Finance
Money is still often seen as a taboo subject: Help your teen establish a healthy relationship with money by intentionally addressing the topic head-on. Talk often about money, savings and retirement, both in everyday conversations and formal settings like family meetings. Be neutral in your conversations — it’s important for your teen to not feel awkward or embarrassed about the topic.
2. Handling Earnings from a Job
Encourage your teen to get a part-time job so they can earn money for expenses, but first agree on what your child’s pay should be used for. Encourage your teen to deposit a portion of every paycheck in a savings account before spending any of it. A teen who is too young to get a job outside the home can make extra cash by babysitting or doing odd jobs for you, neighbors or relatives.
3. Creating a Budget for Teens
Writing a spending plan or budget can help your teen learn accountability for his or her finances. Your goal is to teach your teen how to achieve a balance between money coming in and going out.
4. Saving for Your Teenager’s Future
Now that your child is a teen, they are ready to focus on saving for larger goals such as a car and even college. Help them get started by opening a savings account for them. Have them write their goals down and make sure to praise them when they reach their financial goal.
5. Investing Basics
Investing as a teen may seem complex, but this is about laying the foundation early on. Open an investment account for your teen (if your teen is a minor, this will be a custodial account). You should look for an account that can be opened with only a low initial contribution at an institution that supplies educational materials introducing teens to basic investment terms and concepts to help them along the way.
6. Talking About Taxes, Credit Scores and Insurance
As your child works, budgets and saves money, take the opportunity to go over their paycheck and taxes. Show your child how Federal Insurance Contributions Act (FICA) taxes and regular income taxes can take a bite out of his or her take-home pay. Include your teen in your own budgeting for things like car insurance. Walk through factors that affect credit scores, like payment history, amounts owed and credit history.
7. Using Credit Wisely
Credit card companies require an adult to cosign a credit card agreement before they will issue a card to someone under the age of 21. If you decide to cosign a credit card application for your teen, ask the credit card company to assign a low credit limit (e.g., $300). This can help your child learn to manage credit without getting into serious debt. Set limits on what the card can be used for (e.g., emergencies, clothing), and be sure to review the statement monthly with your teen and refer back to the budget you created together.