The majority of teenagers don’t know much about money. Most teenagers between 13 and 19 years old go to school full-time. Sometimes, they are required to do volunteer work (our high school requires 20 hours per school year). Teens are also more likely to be involved in sports than they are in school. This means that they have less time for paid work.
A teenager can’t get a work permit in most states until they turn 16. This is usually in the junior year at high school. This stage is suitable for part-time paid work (10-20 hours per week). You can have your teen do the yard work for neighboring people (like I did), or start their own pet sitting company (two of my nephews did this successfully).
You can teach your teenager about money and how to save money.
Give your teenager a book about money and finances. It should be written for teens, not adults. You can check out online bookstores, or visit your local bookstore. Check that “teenager” and “teen” are in the title. Before you purchase the book, take a look at it. Make sure that the book contains lots of graphs and pictures if your teen doesn’t like reading. You can even find a DVD to teach teens money and saving.
Show your teenager your savings account or your checkbook. Demonstrate to your teenager how to balance a bank account. Show your teen how simple it is to pay your bills online. Many banks let you check your checking or savings account balance online. Your account information and the method you used to check it should be shown to your teen. Not even to your teen, do not reveal your password.
Your teenager should have his own savings account. You can’t open checking accounts until your teenager is 18 years old or has a job. Go over the statement together until you understand everything. He should be able to see the amount of interest that he earned in each month. He should be aware that the bank can borrow his money to lend money to others by putting money into a savings account. The bank must pay him interest to use his money.
Teens don’t realize that saving money is the first step to buying something. Do not give your teenager a credit card. He will be encouraged to max out his credit card and then wonder what he’s going to do to pay it off. Your teen’s credit card statement. You will be charged interest if your monthly bill is not paid in full each month. Assume you have $1000 in the bank each month. Your teen should be aware of the minimum amount that can be paid. It will likely be $25. Consider what will happen if your teen pays only $25 per month. Calculate the interest he’ll have to pay. It will likely be twice what he owes.
A credit card should not be opened until 18 years old, or even after graduation from college (usually 21-22). I will go further and say that no one should have credit cards if they don’t have a job or a substantial bank account. A credit card should be avoided by anyone who lives paycheck to paycheck. Tell your teen why you feel that way.
Teenagers (at least for boys) long to own a car. Encourage your teenager to save money. Let him know that you will match any money he saves for a car. Your teen should first buy a used car, but one that is less than three years old. It is best to allow your teen to have one of your cars, especially the one he has used the most. You can then buy another car.
It is the worst thing that you can do for your teenager. This encourages the “something-for-nothing” mentality. This will encourage dependence on you to do everything. One prime example of dependency is when your college student brings home a large laundry bag. He doesn’t know how to wash his clothes and go to the laundromat. Your teen should be as independent as possible as soon as possible, but not later than 18.
Your teen should be told that he must keep his car for two years or until he goes to college. You might help your teen buy a car once he’s ready to go to college (and it’s not more than 300 miles from home). Be willing to match the college-bound teenager’s savings with mine. You and your teen can trade in an old car and pay 25% of the cost and finance the remainder. Your teen should know that he is responsible at least half of the monthly payment. This can be done by working part-time.
Tell your teenager how satisfying it is to be able pay off your debts on time and be debt-free. Make sure your teenager takes a class about saving money and finances.
It is not fun to be in debt. Your teen should know that it is not fun to be in debt. He must also understand that he must make all payments on time. Talk to your teen about credit ratings and how you can help him achieve a high credit rating. Your teen should know that having a high credit rating can help him purchase big-ticket items like a car.
After your teen has demonstrated that he can pay his debts on time and still have money saved, it is time to teach him how you can invest in stocks, bonds or other negotiable assets.
Encourage independence in your teenager. He will be more successful if he is able to do everything on his own. Encourage him to not rely on you for money or anything else that he can do independently. Let him know how great it is to not depend on anyone.