I often find myself thinking about finance. That’s not just because I’m in the business of real estate investing, but that certainly plays a big part in it. I think that in our current era, when we’re coming off of the mortgage crisis and seeing nationwide retirement woes, now more than ever I’m concerned for the generation coming up.
It’s so important that we as parents are teaching our teenagers how to truly value their money and how to be fiscally responsible. The wisdom of my generation won’t necessarily be true for theirs, but the basic foundation that we impart may make or break them.
So as parents looking to impart lasting financial wisdom to their teenagers, what do we do? How do we know they’ll be okay once they’re on their own?
5 Lessons on Fiscal Responsibility to Leave Your Teenagers Before They Leave Home
1) Push for employment.
One of the most eye-opening experiences a teenager can have is employment. It can push them to be more responsible and appreciative of hard work. A first job will have them earning a real paycheck and they will get to experience what it’s like to earn money that isn’t coming out of mom and dad’s pocket. They’ll have to rely on that bi-weekly timetable to get by and learn to save.
It will show them what happens if they blow their paycheck the second they get it and they’ll likely learn some hard lessons that way. Better to learn now, while they’re still under your roof than when they’re on their own and fending for themselves.
A first job is a great opportunity to build character and fledgling savings.
2) Incentivize savings.
Along with that first job comes your opportunity to really push for a lesson on saving money. For many teenagers, their mind turns to bigger purchases—like a car, for example. At that age, however, it can be a challenge to have the self-control and patience to save for such a large purchase.
You can step in and make a deal to help incentivize their savings. It’s up to you how you want to structure the deal. Maybe you want to match their savings dollar-for-dollar. Maybe you put a cap on it or even say you’ll buy them a car when they meet a certain goal for their college fund.
Whatever you decide, giving them a concrete goal and a reward to work towards can help give them that extra push of endurance when their resolve weakens.
3) Be real about the cost.
One of the difficult things for young people to understand is just how much life costs. Taxes, insurance, groceries, car maintenance, gas money, utilities, healthcare...it all adds up! Many young people, especially teenagers who haven’t ever known these adult responsibilities think of the money they earn as all theirs to spend how they please.
You can start to teach them the reality of how much it costs to be an adult by having them share the burden. Have them pitch in to pay for their car insurance. Let them pay for their own gas. Teach them how to read their paycheck so they can actually see how much money goes to taxes. Break these things down for them in a real way that doesn’t seem unfair, but just so they can understand the reality of what how much realistically ends up in their pocket at the end of the day.
4) Start budgeting.
A helpful tool to start with early on is budgeting. We all know the value of budgeting but so few of us still work with budgets in our increasingly digital age. One way you can help your teenager understand a budget on a small scale is by taking them grocery shopping with you. Budget $200 for groceries and give them a list, and let them figure out if they can get all of the items within budget. They will have to work with coupons, weighing brands against one another, and cutting items that you may not really need—like a pricey gallon of name-brand ice cream.
If you want an activity that’s more geared towards a college-bound teen, sit down and talk about what career your child wants to have and where they want to live. Research median salaries and the cost of living. From there, you can see what a month’s pay would be and use a tool like Bankrate’s Cost of Living calculator to determine expenses. This will show a more realistic picture of where your money really goes.
5) Explain debt!
With college debt higher than it’s ever been, it’s more important than ever that teenagers understand debt before they ever sign anything. So many teenagers are going to college without even understanding how much debt they’re accumulating year after year, what the terms of their payment plan is, what an interest rate is, or what the difference between bad debt and good debt is.
Even though student loan debt is considered good debt, a teenager might choose to go to a different school if they knew they’d be paying back their loans for over twenty years once they finished school, or if it hindered their ability to buy a house later.
Sit down with your child and explain the dangers of credit cards, what impacts a credit score (and what a credit score even is!), and why student loan debt matters and when they’ll have to pay it back.
It is one of the biggest financial issues that will face them. Don’t neglect to talk about it.
While you won't be able to prevent your child from facing financial challenges, you can give them a good foundation. It all starts by leading with a good example and actually talking to your kids about money.
What's the best piece of financial advice you received from your parents? Share it in the comments.