Budgeting – It is imperative that they understand the difference between income, expenses, and savings as well as the concept that expenses should NOT exceed income as this will result in accumulated debt and will incur costly interest. Remind them that if they try budgeting and it doesn’t work the first time, don’t fret, try it again. It may be as simple as making a few minute changes to your budget to get it to work.
Bank Accounts – Teens should know how a bank account works and all possible fees associated (minimum balance amounts, activity fees, insufficient fund fees, ATM fees etc.). And although check writing may someday be obsolete, be sure to show them how to write a check and explain that the presence of checks or a debit card does not necessarily mean they have the funds available to spend. Overuse can lead to costly and embarrassing insufficient fund fees. Also be sure to express the importance of tracking all transactions as this will keep their total available up to date.
Credit Cards – First and foremost, they need to understand this is borrowed money and you do have to pay it back! It is not free and the longer it takes to pay it back, the more it costs due to interest. Explain credit limits, payment periods, minimum amounts due, the weight of credit card debt, and how credit card debt and interest expense can quickly accumulate. It is also important to point out that utilizing a credit card can be a great way to begin establishing credit, but only when handled responsibly! A balance kept below 30% of the credit limit is ideal and will be easier to pay off.
Savings – Understanding the importance of savings ~ not only for a car, trips and expensive purchases, but also financial emergencies that may arise (car/house repairs, medical expenses, etc.) is a must. And if at this point in the conversation they still seem interested in what you have to say, be sure to go ahead and touch on retirement. It’s never too early!
Furthermore, do you have any financial mistakes you have learned from in the past? Or perhaps you have a friend or acquaintance that made a mistake in which you purposely avoided. If so, be sure to utilize these examples as a great teaching opportunity.
In closing, as parents, it is up to us to ensure our children are equipped with the necessary information regarding personal finance as this will ultimately give them the best opportunity for financial success.