The most important lesson of parenthood is that kids don’t stay kids forever. Undoubtedly, you heard other parents talk about how quickly their babies turned 18 and moved out of the house — and now you are facing the exact same experience.
However, before your chicks fly the coop and leave your nest empty, you need to prepare them for the financial trials to come. Even if you have been diligent about teaching them how to do their laundry, how to cook healthful foods and how to manage their emotional states, you need to take the time to impart important financial wisdom before they fritter their money away in college and beyond.
Some see the new financial struggles of young adulthood as a trial by fire, but you should only let your little ones face that trial with the right tools. Here are a few ways to give your teen some financial practice before letting them loose in the real world from a guest writer.
How to Prepare Your Teen (Financially) for College and Beyond
Get Them a Credit Card
It might feel like a horrible mistake to give unlimited spending power to an impulsive adolescent, but the truth is the sooner a person has the responsibility of managing their credit, the sooner they will be able to use credit responsibly. Teens can sign for credit cards on their own once they turn 18, but you can co-sign with your teen to help them build credit sooner; it can be a good idea to give them a credit card as young as 15 or 16, so they have some spending power as they experiment with independence.
It should go without saying that you need to teach them the right and wrong ways to use credit cards. You should keep their limit relatively low, around $1,000, and work with them to pay off their balance each month. You should explain what kinds of purchases are best for credit cards and the importance of building good credit over time. Then, when they have unlimited freedom in college, your teen won’t feel tempted to abuse their credit and put themselves in a bad financial place.
Show Them How to Make a Budget
A budget is the bedrock of personal finance, but making and maintaining budgets doesn’t come naturally to most people. Because your teen is likely to live on a limited income during their college years, they need to become intimately familiar with budget building before they are let loose in the real world.
You should walk them through the process of creating a budget, perhaps using your current household income and expenses first. Then, you can use a personal finance program to track your teen’s spending and develop a working budget for them. You might consider rewarding them for adhering to their budget or continuing to engage with their budget.
Save up Together for a Big Purchase
Most teenagers desperately want something too expensive, like a brand-new gaming console or a trip with friends. A good way to teach financial responsibility is to help them develop a savings plan to afford that big expense.
First, you need to open a dedicated savings account under your teen’s name. You and your teen should work together to determine how much savings they will need to afford their purchase, and you should talk about valid savings strategies, like reducing expenditures and
Next, you should discuss saving strategies, like creating a savings timeline, reducing expenses and paying their savings account first. You can incentivize savings by matching their deposits, which will help them reap the benefits of saving sooner.
Look Into Career Paths
For many, college is an opportunity to explore interests and gain knowledge — but if your child isn’t also forming the foundation of a career that will support their intended lifestyle, you might have made a mistake. Many teens aren’t certain what they should study in college, and while they should have the freedom to experiment with different subjects, they should also be made aware of the importance of investing in a degree that will pay them back. If your teen is interested in pursuing an education that doesn’t have a clear career path attached, you might work with them to explore how they can leverage their college experience to make money in the future. Otherwise, you might encourage them to double-major or minor in a more practical field.
Your little one is preparing for adulthood, whether you are ready for them to or not. In these last few years or months before they fly your coop, you should teach your fledglings the essentials of personal finance, so you can be certain they can support themselves through college and beyond.