Even while American kids improve in other subjects, United States youth are only getting worse at handling money. According to the Jump$tart Coalition, an organization that aims to educate American youth on good financial habits, high school seniors regularly score lower than 48 percent on tests concerning personal finance, and college seniors rarely do much better with scores of around 65 percent. With such limited knowledge of finances, it should be no surprise that roughly one in four young adults is spending more than s/he makes despite having unpaid student loans, medical bills, and more.
The truth is that financial savvy starts at home, and typically, it starts young. If you want your teen to have the financial know-how to navigate successfully through a money-centric world, here’s what you can do to set them up for college and beyond.
As soon as your little ones start asking about money — which could be as early as preschool or kindergarten — you should start their financial educations. You can begin with exceedingly basic information, like currency breakdowns (e.g., there are four quarters in a dollar, and there are five nickels in a quarter). Providing a small allowance is also a smart way to get younger kids engaged with money, but you should beware handing over cash without enforcing valuable lessons, like the importance of saving and donating as well as spending.
Making Responsibilities Real
After your kid enters his or her teen years, it is important that they get real-world experience with money. Teens especially crave responsibilities, and granting them more freedom with their allowances (and other income) allows them to understand and develop good financial habits. If your teen runs out of his or her cash and can no longer go out with friends, he or she has learned a valuable lesson on budgeting.
Additionally, if there is a special item your teen wants or needs (like a guitar or a car) you should encourage him or her to stick to a budget. You can provide examples of your past budgets to demonstrate how most adults save and provide extra incentives for smart financial choices, like matching contributions to savings accounts.
While cash remains an important method of payment, more than 80 percent of today’s transactions use some form of plastic. Misunderstanding credit is one of the leading causes of young adult financial trouble, so establishing responsible credit habits early is a must.
While your teen is under 18, he or she must have a co-signer (or else prepay) on any lines of credit taken out, which means you have some control over his or her credit spending at first. Before you let him or her loose with plastic, you should demonstrate how abusing credit can quickly lead to financial disaster.
As soon as your teen becomes a true adult, he or she should have a personal credit card and begin building his or her own credit. It is wise at this early stage to balance rates and rewards to ensure your kid is getting the most out of his or her transactions, which means it is wise to research the best credit cards for students.
Plenty of parents end up doing their kids’ taxes well into their 20s — and not because they love doing taxes. As soon as your teen gets his or her first job, be it babysitting or sweeping up popcorn at the local theater, he or she should be learning to complete his or her personal taxes. Even if you use a form-filler like TurboTax, your teen should be active in filling in numbers. With any luck, you will only be responsible for your own taxes after a couple years.
Some schools attempt to educate teens about the stock market, but most lessons fail to explain the power and flexibility of investing. Using some of your kid’s allowance or income, you can teach him or her about the dos and don’ts of investments. Working together toward a common goal (like college or travel funds) you and your teen can develop an investment plan, evaluate the market, and explore losses and gains for a more complete picture of the stock market than he or she is likely to get in school.
Prepping for College
Undoubtedly, a teen’s biggest financial burden will be saving for the monumental expense of college. Even as tuition rates rise, the importance of earning college degree remains vital in the workplace. Read more about what you and your teen can do to save for college in the infographic below.
Infographic design by Comparecards