Last month I talked about what lessons it is important to be teaching your kids about money. I mentioned that I would go into more specifics about teaching teens about money in a later blog. Well, I figured I might as well go on to it sooner rather than later, so here we go. Those lessons taught throughout childhood should be continued to be reinforced throughout their teen years of course, but now you must get even more specific about actually preparing them for living their lives as financially independent adults. By teen years they should: Be paying for as much of their own needs as possible. This includes their clothes, phones, entertainment, car expenses, etc. Even if you are giving them an allowance to cover some of it, the money should be “theirs” to budget for all these expenses. This will set them up for learning to budget their living expenses when they are out on their own. Be saving for their future needs. They should have been saving for bigger “wants” throughout their childhood. Now they have some needs to be saving for. The biggest and most obvious is that first car. Encourage them to save for it. Even if you help them out, by giving them some cash “gifts” along the way to add to the savings or offering to match their savings (to let’s say equal to the amount that have saved), it should still feel like something that they have saved up and paid their own money for. This way they will learn to save for their bigger purchases throughout their lives. When my own children bought their first cars this way, I went one step further and had them set up an online bank account and pretend that they had bought the car “on payments”. But instead of paying the car payments to the bank they set up automatic payments going into their own (online) “car account”. This way they were ready to pay cash when they needed to buy their next car and would never need a car loan (or pay interest payments). For more on this see No Loan Auto Ownership Be advised to go to college with no (or as little as possible) student loans. Make sure they know that where they went to college will not make a whit of difference years down the line, but those student loans (if they choose to take them) will still be with them for a long time to come. They can attend community college for the first two years. Unless they get a great scholarship, they should attend a state school. For more tips on how to save money on college see: Smart-financial-planning for College Be taught the dangers of credit cards and debt. When your child is nearing the age of 18 they will be starting to receive credit card “offers” in the mail. Teach them to steer clear of these. Talk to them about how easy it is to go into debt. Teach them to only spend the money that they already have. Do not be spending “future money” that has not even been earned yet. Many kids get credit cards in college with disastrous results. They end up graduating with not only student loans hanging over their heads, but also start out their independent lives with credit card debts already weighing them down. Let them use a debit card for their expenses in college. Caution them to keep track of how much is in the account at all times. )Know about credit scores. No one should be taking out a credit card until they have a very full and mature grasp on managing their money and budgeting wisely to pay their expenses and also saving for the future. Only once this is happening should they open a credit card in order to obtain a good credit score. It is possible to live without a credit card at all but unfortunately not having a (good!) credit score can make life difficult at times as it is looked at by prospective employees, landlords, car rentals, and of course, eventually, mortgage bankers. But it should be used only for the purpose of obtaining that good score. To achieve this, teach your offspring to open one credit card and use it for one thing (one bill, or only groceries, or gas, or whatever). Always pay it in full and on time every month. Never carry a balance on it. And never use it for anything else, especially something that they can’t afford. Save up for things and pay cash with money that they already have. This is one of the most important concepts you can teach them. Know about the virtues of compound interest. And why it is so important to start investing early. Teach them that if they invest early and let the money grow they will have to invest far less of their own money to achieve the same nest egg of someone who started later. The magic of compounding interest will do the growth for them. Know how important it is to always live below their means. Which if you think about it is exactly what they will be doing if you have successfully taught them all of the above lessons. Know how to feed themselves frugally. Teach them to cook. Show them how much cheaper it is to buy your own inexpensive ingredients than it is to eat at restaurants or get take-out. For a primer on frugal grocery shopping see Money Saving Tips from Your Auntie Victoria When you send your newly minted adults out into the world armed with this important knowledge, you (and they) can be assured that they will not become a part of the hapless statistics on adults living in debt and with no financial safety net beneath them. They will have a strong financial foundation from the very start. And your work is done. Wishing you and your children the brightest future you can have!
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