Finances and budgeting are almost never taught in today's educational system. Although our kids learn advanced algebra and the history of economics, they rarely get the practice they need learn how to make a budget, stick to it, and start saving money as soon as they land their first job. Add to this the practice of credit card companies in targeting 18 year-olds and other college-bound youth, and the result is a potentially dangerous combination of irresponsibility and mounting debt.
This means that it is the job of parents – and the finance industry – to make teens responsible about money. And while it might seem difficult to teach fiscal responsibility to a generation known for acting first and thinking later, responsible money management is one of the most important lessons you will ever teach your kids.
What to Teach Your Teens about Money
The most important thing teenagers – and adults – need to learn about money is that it is important to set goals. Telling your teen that he or she needs to take 10 percent out of every babysitting paycheck and put it in a savings account only teaches them that they need to listen to Mom or Dad. Urging them to save $1000 to invest in mutual funds along with your own investments allows them to visualize a goal and calculate what sort of returns they can expect later on down the road.
Seeing those numbers written down on paper can go a long way in solidifying a teen's understanding of finances. After all, safely invested money looks much like free money after awhile, and when your teen combines this type of goal with the goal of a large purchase he or she wants to make – say, a down payment on a car – he or she will have double the incentive to save.
Learning to Budget Early
Most teens should also learn the value of budgeting. In today's society, the general urge for teens is to buy first, and ask questions later – and Mom and Dad will take care of the rest. Whether a purchase is made on a credit card or at the expense of this month's gas money, many teens are later "bailed out" by parents who don't want to see their kids racking up bad credit scores.
While protecting your child from a lifetime of bad credit is admirable, you're often better off letting them learn from their mistakes. Have your teenager make a budget and stick to it. If he or she goes over, resist the urge to provide the funds they need to get by and force your teen to skip out on movies or new clothes until the budget is balanced. After all, learning about not overspending now – before your kids live on their own and the real danger of debt becomes a threat – can actually help teens in the long run.
No matter what happens, make sure you discuss finances with your teen openly and honestly. Allow teens to make mistakes, but require them to evaluate and learn from those mistakes. After all, fiscal responsibility is something than even many adult struggle with, and you'll help your kids the most by starting financial planning early.