As a parent, you recognize that teaching your children the skills for a successful life is your responsibility. Neither the government, schools, community groups, churches, nor any other person has as much riding on your kid’s success as you. One of those life skills is the ability to manage money and it’s a learnable skill (thankfully). As your kids get older, hitting those wonderful teenage years, learning these skills becomes even more critical.
Money Skills for Teens
1. Balancing a checkbook
Balancing a checkbook is a crucial skill in money management. It’s a lot easier today with software (like Quicken) but there are simple instructions printed on the back of most bank statements. The next time you get a bank statement, take a few minutes to show them how it’s done. Knowing the real amount you have in your checking account is the first step to avoiding overdrafts. Make sure your teenager knows the how of balancing a checkbook, but more importantly, the WHY.
2. Budgeting money
Balancing a checkbook tells you where your money went, but using a budget tells your money where to go. Teens learn how to control their money when a parent takes the time to teach them how to set up, use, and prioritize their budget and it’s categories. A budget teaches how to properly allocate your money to what’s important and how to be flexible when the situation demands. As a parent, the best way to teach your teenager the importance of budgeting is to walk the walk yourself.
3. Establishing credit
Teach your 18 year old the importance of establishing a sterling credit reputation before they go off to college so they can know how to handle the temptation to get more credit cards after they get there. Good credit all boils down to a few things:
- Having only a few accounts open and paying them on time
- Keeping your balances low
- Insuring your income and assets never exceed 50% of your available credit
Good credit can be established for 18 year old+ teenagers by getting a secured credit card.
4. How to pay for college
In an ideal world, parents would have plenty of money saved for their teenager’s college experience, but we live in reality, don’t we? With the continuing increases in college costs, 18 years of savings might not be enough. As a result, either the parent or the student will have to apply for financial aid. There are other options though, ranging from:
- work a semester, go to school a semester (pay as you go)
- attend a local junior college for the first two years
- go to college online
- take advanced placement courses in high school
5. Identifying wants vs. needs
I believe it’s important to keep some wants in front of you. After all, needs aren’t particularly motivating. But it’s important that teens recognize that some things in life really aren’t priorities when put in proper perspective. Paying for groceries is more important than paying for a house party. Paying car insurance premiums is more important than another road trip.
6. Dealing with debt
No matter how much you teach, chances are pretty good that your teenager will rack up some sort of debt, whether through credit cards or through student loans. Plan to teach them early how to attack debt and get it wiped out quickly.
I’d recommend Debt is Slavery as a short but captivating book on dealing with debt.
7. Paying taxes
Yeah, I don’t like paying taxes either, but they’re as inevitable as dying for about 50% of the population. When April rolls around each year, make sure your teenager has already filed his or her taxes or has a plan in place to do so. With software packages and free online options, filing your taxes is as easy as setting up a budget or balancing your checkbook. Paying them isn’t always easy, but filing is.
8. Saving and investing for the future
Saving and investing for the future can potentially be the hardest thing to teach. The “future” seems just so far away when you’re young but if you teach them to save for a trip or a gadget, they will get some sense of what it’s like to hit a goal. From there, ask them if they have any advice for a 10 year old, given their life experience since then. Then ask if they would be willing to listen to your advice to them, given your life experience since your teen years. They just might listen.
From there, I’d recommend reading How A Second Grader Beats Wall Street for some simple, yet effective investment advice and then setting up a savings account.
9. Understanding the total cost of ownership
Teach your children that a price tag is a liar! What is rarely implied is the cost of ownership, not just from the physical standpoint, but from the opportunity standpoint. Sure, that “gently used” BMW may seem like a good deal, until you factor in the cost of tires, brake jobs, oil changes, tune ups, and the inevitable minor fender-bender, but what about the cost of lost opportunity? That car may cost more in the long run than a less flashy, more expensive Toyota!
Economics is simply about the decisions we make with our money and since money is a finite resource, making one decision precludes others.
10. Choosing a thrifty lifestyle
Everything in life boils down to choices and that’s one of the points of The Wisdom Journal. Making the wise choice to life a frugal lifestyle isn’t about being cheap. It’s about saying no to gluttony (the desire to consume more than you need) and yes to temperance (the constant mindfulness of others; practicing self-control, and moderation).
I’m sure there are other critical money skills kids need to learn. What would you add to this list?