Young adults have more debt than ever before. With a lack of money management knowledge, student loan debt, and increasing rent, young adults don't have an easy go of things. While student loan debt and the price of rent are inevitabilities, a lack of money management knowledge is not. To help your child get off on the right foot, you should begin discussing money management from a young age, but if you didn't start chatting about finances with your teen when he or she was a child, don't stress. There is still plenty of time to help your teen get off on the right foot financially. Here are some ways to teach your teen about money.
Help Your Teen Construct A Budget
The first step when you teach your teen about money is to explain the importance of a budget. Teens don't have a ton of bills, but constructing a budget is an excellent practice for their future. If you happen to give your child money each month, you can base the budget off of the amount of money you are willing hand over each month. If they have a job, instead, you can construct the budget based on their earnings.
Don't set up the budget for them; however, make sure they are offering useful answers to simple questions, like how much they think they should be spending each week on lunch and entertainment. Giving your child a bill to pay each month is a great way to work out the budget, too. For example, allow your teen to pay their monthly cell phone bill, then budget the remainder of their money around that bill. Don't forget to help them factor in savings.
As a general rule, about 20% of one's income should go towards savings, and that rule holds true for teens. If your teen makes $500 per month at a part-time job, that means $100 should be allocated towards savings. Make sure you explain how savings works and why it's so important to set aside money each month.
Explain The Importance Of Setting Goals
It's never too early to learn about setting financial goals, and financial goals are necessary to teach your teen about money. For most teens, having a car is a significant milestone, and ensuring your teen purchases their first set of wheels, at least partially on their own, is a perfect way to teach them about the importance of setting financial goals and reaching them. Sit down with your teen and help them map out a plan to save for a car. If they currently have a job, it's a good idea to work with them to figure out how much they need to save each week to reach their goal by a set date.
If you plan on helping your child purchase a car, you can work out the amount they need to put towards the purchase and the amount you are willing to put towards the purchase. Now is also an excellent time to discuss the cost of insurance and car maintenance, and how to budget for those items once the car is purchased.
A Prepaid Card Attached To A Budget App Will Give Your Teen Real-World Experience
If you don't believe your young teen can handle an actual checking account just yet, you can begin with a prepaid card that you deposit cash into at regular intervals. Don't just hand over the card, though. Make sure you attach that card to a budgeting app on your child's phone.
To make sure your young adult understands the value of their money, don't bail them out when they run out of cash. It is bound to happen, but it's an important lesson to learn. The budgeting app, over time, will show your child what they are spending and where. Set up a monthly meeting to discuss their expenditures and help them tweak their habits to maximize their cash.