Eighty-four percent of teens rely on their parents to teach them money management, but 34% of parents don’t discuss financial issues with their offspring. This can lead to poor financial decisions by teens. It’s important for parents to prepare their kids for the real world by going over various financial concepts that can prevent them from making serious financial mistakes.
Let’s go over the concepts you need to talk about with your teen.
A checking account is key to financial responsibility for teens. Explain how checking accounts work, including the fees associated with these accounts. Teach your teen about writing checks, using a debit card, and recording everything. Make sure the child understands that failing to record something could lead to an overdraft and overdraft fees.
Don’t just explain checking accounts to your child. Have your child set up a checking account early to learn fiscal responsibly. Monitor the account at first to make sure your teen is recording every item, even those packs of gum.
Credit Cards and Interest
When your teen turns 18, he or she will begin receiving credit card offers. Many teens don’t understand how credit cards work, and because of that, they overspend. This comes down to not understanding minimum payments and interest.
Unsavvy teens believe if they spend $1,000 on their credit cards, they can pay it off quickly by paying $20 a month. In reality, if they only make the minimum payment, it will take six years to pay back that debt if the interest rate is at 12 percent.
Use a payment calculator to show your teen how much credit cards actually cost. When your teen is ready for a credit card, consider adding him or her to your own account so you can monitor the spending for a while. This could save your child a huge headache and a lot of heartache in the future.
As an adult, you understand that taxes are a way of life, but your child may not – make sure they are prepared before heading into the real world.
Your child drives on roads and visits parks, sees police and fire stations on the road and likely attends public school. Explain that these services are covered by taxes.
Break it down so your child understands that sales taxes are paid whenever he or she purchases an item, and state and federal taxes are paid out of paychecks. It’s important that your child understands how the tax process works to avoid over or underpaying taxes.
Right now, your child is on your health and auto insurance plans, so they don’t have to think twice about making payments or heading to the doctor. That won’t always be the case, though. Your child needs to understand what insurance is and why it is important.
Explain that they will give money to insurance companies, so the companies will cover expenses if something happens. For instance, tell your child that they will pay auto insurance premiums, so the insurance company will cover them if an accident occurs.
Also, explain how bundling insurance policies helps people save money. In addition, go over the expenses he or she can incur without insurance. For example, an emergency surgery could cost hundreds of thousands of dollars without insurance.
Explaining emergency funds is probably the most important lesson you can teach your teen. Working adults should have at least six months of income in a savings account. That way, they can dip into the account in case anything happens.
Explain to your child this money will help in the case of:
- Loss of employment
- Medical emergency
- Home repairs
- Unplanned travel expenses
It’s Time to Have the Financial Talk with Your Teen
Don’t wait another moment. It’s time to have the financial talk with your teen so he or she will be ready for the real world. If your child has smart money sense, he or she will make it far in this world.