3 Tips to Help Teenagers Learn Money Management Skills
June 1, 2021
As teens get ready to make an entrance into the “real world,” a valuable lesson that they must learn is money management skills.
You might have said to your teen, “money doesn’t grow on trees,” but learn money management skills goes well beyond this saying.
Financial management skills are about assuming responsibility, analyzing, and planning one’s finances. It doesn’t matter if your teen is planning on attending college, starting their career, traveling the world, or doesn’t know what they’re doing in the future yet; having an understanding of money management is essential.
Creating good decision-making habits when it comes to finances during the teen years can better help people navigate their day-to-day finances as adults.
When they’ve learned money management skills as teens, they’re better able to go through financial decisions, control impulses, and set a savings goal.
Here are three tips to help teenagers learn money management skills and how to help them come up with a financial plan:
Talk About Needs, Wants, and Tradeoffs
Only about half of all parents have talked to their kids about money. There are some financial values only parents can instill in their teens, especially about money.
The most crucial conversation a parent can have with their child is about what they value and why it’s important that they spend their money on what they value.
So, you can accomplish this by talking to your teen about why spending their money on memorable experiences or on college education instead of stuff is more important.
Talk about the differences between needs and wants and teach them how to control their impulse-buying. You can also talk to your teen about how making tradeoffs when shopping can be helpful, especially when those tradeoffs are for much cheaper options.
For example, if your teen wants to watch a movie, have them consider renting it and watching it with their friends.
Parents must talk to their teens about money to help build their money management and financial skills.
Help Them Budget
When talking about budgeting, the main focus should be on managing cash flow or adjusting, analyzing, and monitoring your personal budget. Having this knowledge can create financial security even during tough financial times.
When you build a budget, you should first start by thinking about what you want life to look like. So, you’re mapping out your life through finances.
After you start budgeting, you’ll be able to track your spending to see where all of your money is going and see if it’s helping you fulfill this initial image.
This is a skill that should be passed on to your teen to see how financial choices impact their goals and dreams.
One way to get your teen into budgeting is to have them print their bank statements. When teens highlight and write down what they’re spending money on, it helps them get a better idea of creating a better budget.
You can even hold meetings with your teen to go over budgets, expenses, and expectations to make sure that they’re set up to succeed.
Talk About Credit Cards and Credit
Teens will receive promotional pieces of mail from banks with offers for credit cards – it’s just bound to happen. So, it’s a great idea to talk to your teen about credit cards and why it’s important to build up their credit score before getting the physical credit card in their hands.
Everyone has a credit score. A credit score is what tells the bank how trustworthy you are based on previous credit experience.
This basically means that if they were to loan you money, would you be able to pay it back? Your credit score is how institutions (i.e., banks) decide if they’re going to loan you money and how much money they will give you to spend.
If your teen decides to open a credit card account, the best way to manage their account is to keep the credit card usage low.
One of the key aspects of building good credit is not using all of the money available to you on the credit card. You should only use about 30 percent to maintain a good credit score.
So, if they have a credit limit of $200, they should only be using $60 worth of the money. Plus, paying the balance off in full every month helps build a stronger credit score because it shows that you’re able to pay back the loan.
Here’s a list of credit scores and how they rank:
• 300-600 = poor
• 630-698 = fair
• 690-719 = good
• 720-860 = excellent
It’s also important that teens know the importance of paying their bills on time and in full to avoid interest charges. Interest is a charge that borrowers pay lenders. Having a credit card is like having a loan that the bank gives you on a monthly basis.
The amount of interest that you pay is calculated as a percentage of the unpaid debt amount. So, if you’re only making the minimum payment and aren’t paying off the credit card each month, they’ll charge you interest on the remaining amount.
Because of this, if your teen purchases a cheeseburger with their credit card for $5 and they don’t pay off their card, and their interest rate is 20 percent, that cheeseburger actually costs them $6.
Credit cards will also charge late fees if a payment isn’t made on time, which is an additional charge on top of the interest charges.
Money management skills are important for your teen to learn, especially when it comes time for them to take on their own finances.
Think of money management skills as a tool; you can build or destroy with it. So, it’s important to teach teens how to manage personal finance while they’re young before they go out into the real world and have to learn the hard way.
Stress the importance of a savings account, having an emergency fund, managing credit card debt, and making wiser financial decisions.