Your teenager may be eating you out of house and home now. But before you know it, she will be talking about college, starting a job, getting her own place to live — and the list goes on and on.
Just as we want our teen to fly the coop and become their own person, we also want them to develop a money-smart foundation. Money matters can be confusing to young adults. So here are some questions to discuss with your teen to get her started:
- How can I help you achieve financial security?
Help her create a financial plan — a plan that will put her on the path to achieving both her needs and her dreams. The plan should include an income stream, a spending component, a savings component, an investment component and, perhaps, a charity component. By learning about savings and investing at an early age, she’ll have a head start in learning to create wealth. What’s a best practice? As your child gets older, include her in at least some of your conversations with your financial advisor.
- What’s your #1 financial document? A budget.
A budget is an excellent tool to help stay in control of money. Your teen can learn how much different items cost and devise ways to earn income to pay for items in her budget. Whether your teen earns income through an allowance, work, or a combination, a budget will help her learn the concepts of regulation and restraint. Check out this video on budgeting and saving.
- Savings. What are the benefits?
A teenager and a savings plan should go hand-in-hand. A savings plan can provide a disciplined process to saving for an expensive item. Or it can help when unexpected expenses and emergencies arise…a surprise health issue, a smashed skateboard wheel, a broken computer. What’s a good tip for savings? Save 15% of every dollar earned or received.
- Credit. What are some key lessons?
Teens need to understand that using credit is equivalent to borrowing money — that instead of borrowing from Mom or Dad, they are borrowing from a bank. Sure, using credit is convenient; however, it comes with responsibility and accountability. What teens need to know is that paying the balance at the end of the statement period is smart. If they don’t pay the balance in full, they will be charged interest.
- Identity theft. What should your teen know?
Being on a tablet or phone is native to this generation. Millennials already conduct many, if not most, of their financial transactions are online. I’m guessing your teen will probably only ever pay for items using her phone. The concept of holding various credit and debit cards may drift away. Therefore, now is a good time to think about protecting her financial security, especially since hacking is part of our lives. What to do: (1) Your child should check her bank account a few times a week to look for unauthorized transactions; and (2) at age 18, begin checking her credit report annually. What’s a good time of year? Around her birthday.