10 things teens should know about money before they leave home
One of the most important lessons parents can demonstrate and teach their children is smart money management. When we talk to our kids about basic financial principles, we are helping them avoid possible negative habits and financial trouble later that could last a lifetime. Below are 10 things your kids should know about before they leave home.
- How to create a budget and stick to it — Budgeting is an important skill that many adults still struggle with. By practicing these skills early, your kids will have a good foundation for their financial future. Create budget categories and teach kids to only spend what is allocated to each category. Many separate their children’s allowance by spend, save, and donate, but you can create categories that work best for your family. The important part is teaching discipline and developing healthy long-term budgeting habits.
- How to use credit responsibly — Credit gets too many young people in trouble that can take years to recover from. By the time your child leaves home, make sure they understand how credit works, including interest and their responsibilities for paying off what they spend.
- Credit scores and how they work — Help your kids understand how credit scores work and how they can build them up – and how they can be damaged.
- How to pay bills — Your bill payment history is a large part of determining credit score. Teach kids the importance of paying bills on time. Most bill payments can be automated, so you can feel confident a payment date won’t be missed.
- Saving for emergencies — Young adults should understand the importance of having an emergency fund to cover unforeseen expenses such as vehicle trouble, medical issues, job loss, etc. This should be different than profit generating saving or saving for a specific item or event.
- Compound interest and investing — A valuable lesson to pass on to kids is that the sooner they start investing, the more they could accumulate over a lifetime.
- Borrowing responsibly — Loans can be beneficial when used appropriately. Having loans and paying them regularly helps establish credit, which leads to better interest rates on future purchases, such as home loans. The key to borrowing is to purchase within your means, and make sure to make regular payments.
- Set financial goals — Having aspirational goals will help motivate your child to save. Allow your child to identify something important to them that they can save up for.
- Be a Savvy Shopper — Learning to pay attention to prices and determine unit price is an important skill that can save so much money on groceries, clothing and other products and services.
- The meaning of financial freedom — Teach your children that buying something they can’t afford ends up limiting their ability to do things in the future. There will always be someone else with more than us. If we stop trying to keep up with others, we can better appreciate what we already have.
Financial education begins at home. You are your child’s first and best teacher when it comes to money management. Work to demonstrate smart money habits, and talk to your kids about mistakes you may have made along the way as well. Talking about positive money habits early and often will give your kids the best chance for future financial success.