You might be wondering how your teenager edged past the driving test and faired so well at the computer test, but has he really learned to be protective about his financial matters? Your teenager may not like to be taught much about money management, but you mustn’t refrain from teaching him core financial concepts. After all, the more he gains an insightful idea on savings it will set his stage for becoming a responsible citizen later on in life.
5 steps on turning a teenager financially responsible are discussed below:
1. Setting a budget
Budgeting constitutes one of the most important segments of managing your financial situation. By opting for the system of envelopes helps a teen to track the cash flow and his personal expenses. The fact that a dollar can be spent only once has to be reminded as the teens have limited resources for meeting their unlimited wants. Teenagers must realize that they must choose what’s necessary and that their lives won’t be affected if they let go of some products. Try planning a summer trip for your entire family and encourage your child to save and contribute towards it. Discuss the amount he would like to spend while eating and shopping during that time. Inquire about how he’d choose to allocate his expenses for this trip.
2. Knowing more on student loans
You may open a fund for meeting the college fees for your teen and supporting the cost of higher education. However, your child will also need to make his own contributions towards pursuing higher studies. Discuss the various areas of higher education that you’ll be sponsoring and the areas for which he’ll be contributing on his own.
Your child must understand how a student loan works and how its repayment terms are similar to your quick cash loans. Discussing the various repayment plans and the portions for which he’d be responsible will certainly help him brace for financial obligations. This, in turn, will prepare him to remain committed towards his other financial obligations once he achieves adulthood. He’ll even understand the need to achieve good credit for making certain purchases.
If your child already has some student debt, you could explain certain way-outs that you had tried in the past. Helping your child gain a firmer grip over his student loan gets much easier when you provide answers to his queries. For this, you’ll need to keep the door open and communicate with him on a regular basis.
3. Distinguishing between debit and credit cards
You must help your child understand the differences between debit and credit cards and teach them how to apply for one. Let them understand the effects of not repaying a credit card on time besides explaining how interest works. You may show them the various means of tracking their online expenses and teach them more about setting card alerts and setting limits while using online banking apps.
4. Learning to earn and save
Help your child find a summer job just to ensure he starts earning on his own. Give your ward the right opportunity to learn how income taxes are calculated and deducted. Helping him in reading the pay stub is one good opportunity. You may even help your teenager in developing his own business simply by contributing towards his passion for things like programming, craft work, or web writing. The skills that he acquires as a young entrepreneur will certainly help him cope with financial challenges in the future.
5. Beginning to invest
You may not have the time to do a detailed research on the factors that affect your ROI, but you may provide an insight into the movements of the country’s stock market and economy. Your teenager is more likely to get acquainted with a few key terms like the “bear market” that’s going to keep him safe under financial emergencies. You may try and discuss the prospect of investing in the Family 401(k) with him just to see if he’s interested in opening a Roth IRA after getting his first summer job. You may thus find a way for your teenager to match his contributions. It’s in your interest to invest in some index fund that’s both diversified and cost-effective. If you teach your child more about savings with tax advantages, long-term investments, index funds, averaging dollar cost, and compounding interests, then it can prove to be highly rewarding for both of you. He will surely learn the benefit of matching opportunities with time.
These days, you’ll surely come across quality online resources that can help both teachers and parents in educating teenagers about the investment benefits. By the time your child reaches adulthood, he’s most likely to master the art of saving money based on his decision-making skills and knowledge of financial fundamentals.