Financial Success Starts in the Teenage Years
Most teenagers have no idea where to start with their money financially, not even how to stimulate a family conversation about it. This would be because most families treat finances like an untouchable subject. My belief is that we don’t speak about finances when we are selves are in a confused state. The workings of money and finances are a mystery to most. How can they teach financial success tips to their teens when they themselves have not achieved financial success?
Do not let your lacking in this financial area determine if you open the conversational path for money discussions. Your child’s financial future is at stake. It is easier to instill the right emotions, thoughts and financial ideas before they drown in debt, like the majority of Americans, than after.
The maze of financial information can be quite confusing and you need to remember that a confused mind will not do anything. Financial confusion activates the same characteristic in all humans and this is why, we as a people, remain buried under the financial debt monster with no, or minimal, chance of financial freedom. The following items are the most basic and most valuable steps to setting up financial security and financial success for your teenager:
? Work – About the time your teenager gets their drivers license they should become gainfully employed. Work will provide them with an understanding of how money is created and how society works. You do not just ask mom and dad and it magically appears. You can not just wash one car in an hour and get $20 like dad pays, minimum wage is much lower. Learning to measure money against labor is something that can be very useful as a child and an adult. A UPS driver I know always tells his kids “do you know how many packages I have to deliver to pay for this?”. A financial self-confidence will be derived from this and provide the with the strength and courage to move forward.
? Budgeting Income & Expenses – Once your child is working, you next need to show them accountability. They need to learn how to manage their finances and take ownership of their financial decisions. You may want to pay all their expenses for them, but you are really hindering their financial success and not aiding in it. Let them pay for their car, fuel, insurance and entertainment. The lessons here are a car, you must save for before you buy it, do not loan money and go in debt, the financial option for many. Fuel is a regular expense that is a necessity if you want to drive, so you will need to budget your finances taking into account your paychecks to make sure you have enough until the next payday. Insurance is a regular saving requirement that instills the value of savings for your sporadic bills; it is also a stress reliever to know it is there before it is needed. This one step can save many from financial disaster. Lastly entertainment, this is the first thing to be cut when our money is running low, gaining them the financial balance we all need, the understand that wants are not a necessity.
? Banking – To manage their financial activities they should acquire both a checking and a savings account, that is not part of the money that you have already set up for them. These accounts should be managed by your teen, but supervised by you to protect them from their immature financial decisions. Here they will learn how to financially decide the amounts to move right after payday for savings of insurance and long term goals. They will learn the value of reconciling their accounts on a regular basis and knowing that their financial house is in order.
? Retirement – Your teen should be taught with the very first paycheck to save 10% for long-term goals. This should not include the savings for current year expenses like insurance. A savings account can be used for this money, but helping them to create their first Roth IRA, would in the long run, teach them more about the value of long term investing. A good financial point to remember and share with your children is to save for something like retirement. This financial choice, for what they believe is a “never going to happen”, will show them time value, something the majority of society is unaware of and believes they can not enjoy. Help them to see the future value of investing $2000 for the first 4 years of their working life 16-20 in a mutual fund that has an average growth of 10%, and how that would leave them with $1 million dollars at retirement. This is without any further financial additions to principle. If you could get a million from $8,000 wouldn’t this be your financial sacrifice today?
? Credit – As a general rule credit should be the last financial skill you teach your teenager. It is not a necessity to live, but it is a financial tool that could save them money when used correctly. You will not need to help them find the credit cards; our society is set up to find the next debtor. They will begin to receive these offers way before you will conceive them as ready. You should discuss with them the financial basics of debt and how there are only two ways to conquer it if you find yourself there. One is to give up all extras in your life cold turkey, until you have paid off the entire created debt. The second is the one most Americans choose and this is to become a permanent debt revolver. This last financial option makes every future dollar you make worth less until eventually you end up making nothing and paying for yesterdays wants today. All the while sacrificing your new wants and needs. Option number one sounds easy but it is so financially and emotionally hard that the majority of people choose option 2. We just do not like to give up our benefits and perks in life.
Credit can be a great tool though, by building your credit score, the number all banks, insurance companies and sometimes employers look at, and you can increase the future value of your money. The safest, smartest and financially savvy way to utilize this is to only charge something you would buy anyway and have the cash to pay for now. For instance, gas for your car, once you make this purchase you would then pretend you already paid for the fuel, and transfer the amount from your checking to your savings until the bill arrives. This will provide you with two financial benefits, interest (minimal) on your money while you use the banks and a high credit score. The high credit score will insure lower mortgage rates, cheaper car insurance, cheaper homeowners insurance and cheaper car loan rates, among other things. Over their financial life, this could be worth hundreds of thousands of dollars.
My point is do not be afraid to break out of your financial comfort zone to speak about the private issue of money and financial success. These conversations will become invaluable to your teen and you might just learn something along the way with your teen.. Your teen’s financial success should be a goal at the top of your list of things to teach your children. Keep your children financially literate and help them to make the financial decision to secure their futures.
