Strategies for Improving Your Teen’s Financial Literacy

Posted on by Guest in Budgeting, Saving Money & Finances

At some point, your teen will head out on his or her own. When this happens, one of the most important skills to have is the ability to competently manage money. This is not a skill taught in most schools, however. If you want your teenager to be financially literate, it’s up to you to be the teacher.

The sooner you start teaching your teenager about finances, and the realities of how money works, the better off he or she will be. Here are some strategies for teaching your teen about money:

Earning Money

In order for your child to learn about money, he or she needs money to manage. Let your teenager earn money with the help of a job. Whether it’s babysitting, mowing lawns, or working at the local burger joint, your teen should learn the importance of working for his or her money.

Insist that your teen pay for some of his or her own expenses. Clearly define which expenses your child is responsible for, as well as other expectations you have for money management. If you expect your child to donate money to a charity, or tithe to your church, make that evident. You can also encourage your child to set money aside for long-term goals, such as college. Requirements such as donations and savings can reinforce the lesson that there are recurring expenses that drain income, and reduce the money at your teen’s disposal for optional expenses.

Be reasonable, however. While it is clear that your child should pay most of his or her entertainment expenses, it might not be feasible for your child to buy his or her entire wardrobe, or pay hefty participation fees related to a sport or other extracurricular activity. While you might split the cost of such activities, it may not be realistic to ask your teen to shoulder the entire cost. Be clear, however, about how much of the cost you expect your teenager to cover.

Checking Account

One of the best ways to get your child started with managing money is to help him or her open a checking account. You will likely need to open a joint checking account in your name and your teen’s name. Most banks offer teen checking accounts with tools that allow you to keep tabs on the account, including copies of statements.

If you pay an allowance, a joint checking account makes it easy for you to simply deposit the money for the allowance. Encourage your teen to deposit money from a job into the account. Then, go over the importance of living within your means so that your teenager knows that he or she shouldn’t overdraw his or her account. Teach your child to read a bank statement, and review each statement as it comes, whether you have it delivered electronically, or whether it comes in the mail.

Personal Finance Software

Most teenagers are quite tech savvy. If you want them to track their spending, and even make a budget, it can help to introduce them to personal finance software. Web apps and computer desktop apps can help them keep tabs on their money. There are smart phone apps and tablet apps for those teens that have the mobile devices capable of helping them check their finances from anywhere.

Show them the features that help them reconcile their account statements, and let them know that they are expected to track all of their spending. This will get them in the good habit of knowing where their money is going at a relatively early age.

Debit Card

Plastic is a reality of today’s world. Ignoring the prevalence of credit cards won’t help your teenager in the long run; you need to address the issue head on. Discuss credit cards, and what they are used for, and how they can be used appropriately. However, don’t assume that your teenager is ready for a credit card. It might be best to start your teen off with a debit card, attached to your joint account.

A debit card provides the same experience as using a credit card — without the borrowing. Your teen learns to swipe the plastic, track expenses, and avoid spending more than is available. Many banks will issue a debit card to a teenager on a joint account, as long as he or she is at least 16. Check with your bank for individual bank policies and state law to find out for sure.

You can prevent your child from over-drawing the account by declining standard overdraft services, which authorize your bank to allow a debit card at a point of sale or ATM to overdraw. This can result in hefty fees. Besides, the first time your teen is declined due to insufficient funds, he or she will learn a very valuable lesson.

There is no need, in most cases, to get a prepaid debit card, which can come with large fees. A regular debit card will often do the trick. If your child shows responsible behaviors, you can then consider that he or she might be added as an authorized user to your credit card account.

Janet Hutchins writes about personal finance issues and responsible credit card use for CreditCardsCanada.ca.

Note from Forest: I hope you enjoyed the guest post. Personally I found it very informative and right on the money. Teens need to be able to leave the nest with their head in the right place, especially when it comes to money.

Tags: financial literacy, teaching kids about money, teens and money