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Money Lessons for Teens
As adults, we all have financial responsibilities. How prepared we are for these responsibilities may depend largely on how much we were taught about money growing up. You can help prepare your teenage children and grandchildren for their future by helping them understand how money works. And if you teach them well, you are more likely to have financially independent kids --who won’t live in your basement.
CNN Money suggests that there are four main lessons that teens need to learn about money:
How to budget. As soon as your teens start getting money of their own, whether that comes from a part-time job or an allowance, help them learn to track their spending. Show them how much money is coming in and how they are spending that money. Make them responsible for buying some things on their own, so that they learn that if they want something, they have to budget for it. If they don’t have enough money, they need to cut in some other area or figure out how to make more money. Include a discussion on budgeting for saving and for giving to charity.
What things cost. Most teens don’t really understand how much life costs. So show them. Take the phone bill and show them how much it costs to provide data, for instance. If they drive, show them how much more your car insurance costs since they started driving the car. If you feel comfortable, you might share with them your monthly budget. Most kids think their parents make a lot of money, but they might be surprised to find out how quickly that money goes to pay all the bills that adults pay.
How to read a paycheck. Go over your teens’ paycheck stub with them. Show how the gross pay is reduced by things like taxes, insurance, retirement savings, etc. Explain that what is left over is what they really have available to spend. That will ease the shock when they have to start supporting themselves on a paycheck.
How debt works. Explain that almost everyone has to borrow money; it is very unlikely they will be able to buy a house without a mortgage, for example. Show them the difference between good debt – such as low-interest, long-term debt like a mortgage – and bad debt – such as putting a party weekend on a credit card and not paying it off. This also can be a good chance to talk about the importance of having a good credit score and the types of actions that can increase that score. For example, explain that paying off credit cards every month means they don’t have to pay exorbitant interest rates for carrying a balance, and they can improve their credit score – which in turn will make it easier for them to rent an apartment and borrow money at better interest rates.