While adults may define financial independence as reaching significant milestones like paying off the mortgage or early retirement, teens often associate financial independence with freedom: severing ties with mom and dad, spending on little luxuries, and traveling where they want. However, with little experience managing money and a limited understanding of finances, it is too easy for teens to fall into poor spending habits, apathy for their financial future, and even a blase attitude about debt. Not only can this strain familial relationships, but it sets teens up for continued financial struggles and poor decision making.
That said, how can we help our teens get started on the right track? How can we encourage them to build healthy financial habits that will serve them well?
Here, we’re sharing five tips.
Encourage Your Teen to Take on Small Financial Obligations
One of the best ways to learn the value of a dollar, the importance of budgeting, and the basics of money management is to give your teen financial obligations. The best debt consolidation options for your teen involve not accumulating debt, to begin with! These obligations should be something valuable to the teen to have the most impact. Start small, like having your teen pay for non-essential groceries, cosmetics, or clothes. Instead of simply buying your teen that new outfit she wants, encourage her to save up for it. Not only will this help her learn the value of hard work, but it will also quickly encourage her to weigh her priorities: Would she rather have that outfit or instead spend the $100 on a fun weekend at the beach with friends?
Additionally, you can help your teen by encouraging him to contribute to his extracurricular expenses. If he wants to attend the school dance, ask him to pay for his tux rental or the flowers for his date. Allowing your teen to pay for some or all of his school activities is a great way to him with money management, and it may also place a higher value on these things that your teen might otherwise take for granted.
Push Your Teen to Find a Steady Source of Income
Instead of paying your teen a weekly allowance for house chores, encourage her to get a job. From babysitting to working at the local coffee shop, odd jobs are a great character builder for kids and teach them how to become financially independent. Jobs also allow teens to pick up new skills that translate to bigger jobs. Not to mention, they can provide some good fodder for those college admissions essay!
Start a Savings Account for Your Teen
At the very least, encourage your child to set up an emergency savings account. If your teen has other financial goals, like buying a car or attending college, open an account for these expenses. While your teen is likely covered under your car and health insurance policies, that does not mean you have to pay for associated emergencies. Allowing her to help contribute to her medical expenses or car repairs provides a valuable lesson in the importance of having an emergency savings account. Guiding your teen in building up a robust savings account will help her instill healthy financial habits that will serve her well into adulthood.
Prepare to Self-Fund Higher Education
College is expensive, and it isn’t for everyone. Discuss career goals with your teen and connect him with a professional in his desired field. Whether your teen has the opportunity to shadow someone in the field or take on an internship in the industry, he needs to have a clear picture of what he would like to do for work before committing to the large college price tag. The key is to teach the teen the value of money and the importance of avoiding debt – teach him or her that student loans are not “free money,” and accruing large amounts of them to pay off later is not a financial strategy (neither is planning on going through a debt consolidation program to “clean the slate” financially!).
Whether your teen decides to learn a trade at a vocational school, pursue a two-year degree, four-year degree, or go all the way to a doctorate, helps him understand his decision’s financial impact. Ask your teen how he will pay for their Education. If student loans are the answer, make sure that he has all the information needed to understand the short and long-term obligations and consequences of taking on student loan debt. Discussing the costs of private or ivy-league schools versus community colleges and other public options is also important.
Encourage Good Spending Habits
The money habits your teen develops now will likely follow him forever. Help your teen create good spending habits by encouraging him to track his spending. There are numerous apps available to make tracking your spending a breeze. Encourage your teen to find an app that works to help him track his spending, set a spending limit for specific categories, or remind him to make regular savings deposits.
Financial literacy is the key to a strong financial future. Help your child prepare for financial independence by openly talking about money management. Encourage your teen to share some of the responsibility for your family’s financial obligations to help her learn essential money concepts that will provide the foundation she needs to avoid money problems down the road and help her reach their financial goals.