According to a study completed by ING Direct, 87% of teenagers do not have a basic understanding of personal finance. Another study by Nellie Mae indicates 54% of first-year college students have a credit card and 92% of second-year students. Teenagers using credit before building a foundational understanding of personal finance are a dangerous combination.
They are the leaders of tomorrow, and with 87% uncomfortable with financial topics, the future of family balance sheets is at risk. Here are a few strategies to help your teen increase their financial literacy.
The Teaching Process
Teenagers have a wide range of maturity levels, eliminating a one size fits all solution. When teaching your child basic financial and money management skills, consider their maturity, learning style, and interest.
Even if you are uncomfortable with the subject, you can give them the knowledge and skills needed to manage their finances in adulthood. Failure to educate your child could result in major financial mistakes, taking on too much debt, and not reaching their financial potential.
Parents have a wealth of opportunity to teach financial lessons and cannot rely on schools, which currently do not do an adequate job. Use everyday experiences to broach the topic. They can learn from your mistakes, online portals, and their life experiences.
Play A Game
Websites which focus on play help children relate financial lessons to real-life applications on a platform they enjoy. These games can help children learn definitions, financial strategies, and best practices. They will gain an understanding of finances and money with the chance to repeat the games frequently, increasing retention.
Learn4Good has a wide range of activities for children of all ages. Games can focus on money, finance or running a business. For example, Tycoon Business presents students with a business model to run and educates gamers on the financial skills necessary for success.
The Practical Money Skills website covers financial knowledge, such as money management, debt, and guarding against identity theft. The site uses interactive games such as playing virtual football or soccer. The gamer answers financial questions to move around the field. Other popular games include Road Trip and Money Metropolis.
The is a significant financial adjustment for teenagers who move from home to college. At home, parents cover all their bills and needs, often without much thought or consideration. In college, students live on a much tighter budget and must cover spending for everything from food to gas. On-campus housing will typically relieve them of payments for rent and utilities.
Teenagers who learn to save money through frugal living fare well when they strike out on their own. Start by giving them a set budget each month for extra expenses and then talk about their spending choices. They will gain confidence in their ability to manage their finances and learn from the natural consequences of their decisions.
There are many ways to avoid paying full price for most items. Top strategies include using coupons, shopping sales, and price comparing online to reduce the cost of everyday items a teenager needs.
Begin by teaching them basic budgeting skills and give them a budget each month to manage. Whether income results from a part-time job or an allowance, they can learn to make buying decisions based on a fixed amount of money.
Ways to find local savings include downloading coupon apps, using local discount guides such as Entertainment or Citi Pass books, and frequenting websites like Groupon and Living Social.
Reward Them When They Choosing to Save
Saving is a difficult concept for young people to understand because they do not get instant gratification. Adding an incentive will motivate them to build positive savings habits. For example, you could match their savings as a reward.
A reward system will keep the motivation high and speed up their ability to purchase more expensive items, like a car. You can also include rewards for contributing to their college fund or donating money to charity.
Children appreciate things more when they work for it, and they are more likely to take care of something they earned money to purchase.
Leave Room for Mistakes
Mistakes happen, and teens can learn as much from mistakes as they do successes. Your teen will overdraft their checking account, buy a poor-quality item or otherwise waste their hard-earned money. Instead of rescuing them from the mistake, let them suffer the consequences and teach them how to rectify the error.
If they overdraft their account, let them contact the bank, pay the fee and fix the issue. Let them handle store returns and other matters that result from their decisions. If they run out of money and cannot afford to put gas in the car, let the car sit in the driveway for a few days.
Allowing natural consequences of actions will teach your child to come up with solutions to their problems and empower them to correct mistakes.
Make it a Conversation
Talking about finances on a regular basis will help your teenager comprehend more fully what money can do for them. You do not have to go into all the details of your financial situation. However, show your child typical financial obligations adults have, and the average salaries for occupations of interest. A reality check on the cost of living can help them make better career choices.
Through a deeper understanding of money and finances, your teenager may become more appreciative of the things you provide. It may also help them understand how expensive it is to live independently. When they don’t realize how much things cost, it is easy not to be appreciative of what they have.
Don’t Forget Safe Practices to Prevent Identity Theft and Emergency Measures
Teenagers are more comfortable freely giving out personal information than previous generations. They interact with friends and strangers online, often without considering the consequences. In 2012, AllClear ID completed a study that showed individuals under the age of 18 are 35 times more likely to have their identity stolen. To reduce their vulnerability to identity theft, teach your child the importance of protecting their social security number, account numbers, pin numbers, and passwords.
Every aspect of finance a teen learns will help them become a more responsible adult. Their financial future depends on it.