What a wonderful thing we can do to get them off on the right foot! Let’s teach our teens these 6 Crucial Money Skills before they leave the nest.
1. The Ins And Outs Of Checking And Savings Accounts
Go with your teen to the bank and help them set up a checking and savings account. You will probably have to co-sign, but this will enable you to have access to guide your teen in smart account management. Through this process you can:
- Teach him or her how to write checks.
- Show how to use an ATM/Debit Card and to balance a checkbook. Explain that an ATM card is for drawing money from an ATM machine (preferably own bank to avoid fees). A debit card is for paying a merchant with money already in the checking account.
Make sure that your teen knows that if the debit card ever gets lost or stolen to report it to the bank immediately. After only a few days, debit card holder financial liability can go up to $500. Even more, down the road if not reported.
- Explain how savings accounts allow for saving money now for use down the road.
2. The Value of Time When It Comes to Interest
Your teen may be surprised to learn that banks and some other institutions will pay a percentage (or part thereof) of the money that he or she places in savings back for allowing the bank “use” of that deposited money. And when your kiddo lets that interest earned stay in savings, he or she will start earning interest on that interest (compound interest).
Over time, this compounding can really add up. Let them try out the Compound Interest Calculator at Investor.gov to see this principle in action with some real numbers.
3. How Credit Cards Work
Having watched parents do it, it young adults think it is so easy to whip out a piece of plastic and pay for something. What is crucial for a teen to understand, though, is that when you do that you are borrowing money. If the money borrowed is not paid back within a month, then the borrower gets to pay interest to the credit card company. And if a payment is not received on time, significant late fees will be tacked on.
Young adults will first be eligible for a credit card at the age of 18. Due to lack of credit history, the first card will generally be a card secured with a monetary deposit and/or have a low credit limit. These restrictions are not bad things as they allow young people have some financial boundaries to start out with.
4. The Steps To Put Together A Budget
How do you know what you have to save and spend if you do not know what your income and expenses are? Help your teen sit down and figure out what money is coming in each month vs. what money is being paid out. Take what is left and help him or her decide what to save and what to spend. If your teen is in the negative each month or just barely scrapping by, it is time to either look at reducing expenses or bringing in more income.
5. What Is Meant By Gross Vs. Take Home Pay
I vividly remember all those years ago, being so excited to get my first paycheck. That is until I actually saw it. What I didn’t realize at the time was that making $5 dollars an hour did not mean that I was going to actually get those five dollars. By the time federal and state, Social Security, and Medicare taxes were taken out, I was left with quite a bit less than that. To keep your kid’s first paycheck from being a real shocker, show them this Sample Paycheck from TheMint.org.
6. The Importance Of An Emergency Fund.
Life does indeed happen when we least expect it. You can be rocking along and all of a sudden, “kaboom”. You get a nail in the sidewall of your car tire and have to buy a new one. You break a tooth, leading to a costly visit to the dentist, etc… Life definitely warrants an emergency fund so that you do not have to make your financial pain worse by having to borrow money.
By helping teens learn these 6 Crucial Money Skills before they leave the nest, they will be much better prepared for heading out into the blue yonder.
For more Money Management tips:
7 Things to Know About Buy Now, Pay Later
How 24 Hours Can Save Your Budget!
