One subject that many teens don’t learn enough about in school is personal financial management. If you have teenagers, be sure that they learn these five financial lessons for teens.
How to Budget. Budgeting is a financial tool that your teenager will use throughout her life, so help her learn this important skill early and well. One real-world way for a teenager to learn how to budget is for her to have her own money in the form of an allowance and her own bills to pay. For example, perhaps you can make her responsible for paying for her cell phone, her clothes, and her share of gas for the family car once she starts driving. Teach her how to budget for these expenses each month, as well as for other financial needs such as saving and charitable giving. One important advantage of a teen being responsible for certain personal expenses, such as a cell phone, is that it helps her to learn the real cost of the products and services that she uses and to begin to make educated choices about what is a necessity and what is a luxury.
How to Defer Gratification. One of the most difficult financial challenges for many of us is learning to defer gratification by setting future goals and saving for them. Like budgeting, this is a lesson that, if well learned, will pay lifetime dividends. Encourage your teen to budget not just for current expenses, but to save for medium-term and long-term goals, such as buying a new cell phone or a dress for the prom (medium-term) and buying a car or paying for college (long-term).
How to Manage a Bank Account. Managing a bank account involves a variety of financial skills including maintaining and balancing a check book and keeping track of deposits and withdrawals so as to avoid overdrawing the account and incurring penalties. Teach your teen how to use a check register to keep track of cash inflows and outflows from her account and how to balance a check book (and insist that she does this chore every month). You could even make an older teen responsible for balancing the family checkbook, which will provide a perspective on family finances and budgeting.
How to Use a Credit Card. Whether or when your teenager gets a credit card is up to you, but given the prevalence of credit cards in today’s society and the likelihood that at some point your teen will have one, an understanding of how credit cards work is critical. In particular, your teen needs to learn the basics of credit card fees and credit limits, the cost of carrying a balance, the importance of reviewing her credit card statement each month, and why she should always strive to pay her credit card bill on time and in full. Your might start by providing your teen with a low credit limit card or a prepaid credit card which will limit her (and your) financial exposure if she finds it difficult to use the card with care.
The Importance of a Good Credit Score. The minute your teen gets credit of any kind, whether it is a credit card or a college loan, she will begin to develop a credit history. Since a bad credit score can take years to improve and can affect more aspects of her life than she realizes (including getting a job, buying a car, and renting an apartment), teens need to understand how financial decisions they make today can affect them for years to come. Therefore, older teens , in particular, need to begin to learn the basics of credit scores, including what they are, what goes into them, and the impact they can have on future goals and aspirations.
Jonathan Burton, www.marketwatch.com, Keep teens out of trouble by teaching the financial facts of life
www.creditscore.net, Financial Education for Teens/CreditScore.net
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