Preparing our kids for independence is a full time job. We help them study, eat right, make smart choices, guide them in relationships and help them hone their talents. They also get some of this same input from school curriculum. What they won't get from their educators is a lesson in financial responsibility which is crucial to their future as an independent, money savvy adult.
Not having an understanding of basic financial responsibility makes for a harsh reality check for hundreds of thousands of teens and twenty somethings. Knowledge is power, and that couldn't be more true than with the knowledge of financial responsibility. Millions of teens enter the workforce each year eager to gain experience and an income. Going over the way taxes work, retirement options, basic banking, and the importance of saving will help set the tone for financial responsibility.
Start by sharing some of your personal experiences. If you've ever been in credit card debt or had to pay a banks NSF fee that is a great place to start. Let them know about the trap of credit card debt with high interest fees, but also how if used intelligently credit cards can help establish credit. The experiences that caused you pain or struggle are teachable moments that kids can use to avoid the same difficulties.
Looking for a job should also mean your teen is looking for a bank to set up a checking and savings account with. Help them by suggesting a bank with branches near by and one that doesn't charge fees. Since you are already on the subject of a savings account start a dialogue about the importance of a "rainy day" fund. The amount they save should be based on their need for income. If they take a job without specific expenses encourage them to save 30-40% of their paycheck. If they do have a car payment, auto insurance, cell phone etc... 15-25% may be more ideal. Saving money isn't just difficult for teens, adults often have a difficult time with it too. When they start to see their savings grow it will enforce the rewards of savings.
Taxes and retirement options... The majority of jobs that are available to teens without experience or a degree may not offer retirement options but some will if enough hours are worked annually. When a company offers retirement options they often have an amount or percentage they will match in contributions. Not only are the company matched contributions an incentive but the fact that money contributed to retirement accounts is tax deferred is a huge bonus. This is what I think of as the closest thing to "free" money. While you are teaching your teenagers these financial tidbits you are also setting a foundation for how they will likely handle their futures, when they are earning more money and living independently. If your teen takes a job without the perk of retirement options and needs encouragement to save money, if your means allow you could offer to match their savings account contributions.
Credit cards can be tempting because people often mistake a line of credit as a way to get what they want now and pay for it later. The reality of credit cards is they often lead to living well beyond our income allows us to otherwise. The bulk of credit card debt doesn't exist because we are using them to pay for housing, food, or utilities, but instead because we wanted a new wardrobe or thought we deserved a vacation. High interest rates with increasing credit limits can get anyone into financial trouble. This is another great area to interject personal experience. Show them what a maxed out $1000.00 credit line with 23.24% interest looks like with minimal monthly payments. While establishing credit is necessary it is more necessary that they understand financial responsibility first. Give them the fundamentals that they can apply in real life scenarios now and your guidance will carry them into their future.
Start by sharing some of your personal experiences. If you've ever been in credit card debt or had to pay a banks NSF fee that is a great place to start. Let them know about the trap of credit card debt with high interest fees, but also how if used intelligently credit cards can help establish credit. The experiences that caused you pain or struggle are teachable moments that kids can use to avoid the same difficulties.
Looking for a job should also mean your teen is looking for a bank to set up a checking and savings account with. Help them by suggesting a bank with branches near by and one that doesn't charge fees. Since you are already on the subject of a savings account start a dialogue about the importance of a "rainy day" fund. The amount they save should be based on their need for income. If they take a job without specific expenses encourage them to save 30-40% of their paycheck. If they do have a car payment, auto insurance, cell phone etc... 15-25% may be more ideal. Saving money isn't just difficult for teens, adults often have a difficult time with it too. When they start to see their savings grow it will enforce the rewards of savings.
Taxes and retirement options... The majority of jobs that are available to teens without experience or a degree may not offer retirement options but some will if enough hours are worked annually. When a company offers retirement options they often have an amount or percentage they will match in contributions. Not only are the company matched contributions an incentive but the fact that money contributed to retirement accounts is tax deferred is a huge bonus. This is what I think of as the closest thing to "free" money. While you are teaching your teenagers these financial tidbits you are also setting a foundation for how they will likely handle their futures, when they are earning more money and living independently. If your teen takes a job without the perk of retirement options and needs encouragement to save money, if your means allow you could offer to match their savings account contributions.
Credit cards can be tempting because people often mistake a line of credit as a way to get what they want now and pay for it later. The reality of credit cards is they often lead to living well beyond our income allows us to otherwise. The bulk of credit card debt doesn't exist because we are using them to pay for housing, food, or utilities, but instead because we wanted a new wardrobe or thought we deserved a vacation. High interest rates with increasing credit limits can get anyone into financial trouble. This is another great area to interject personal experience. Show them what a maxed out $1000.00 credit line with 23.24% interest looks like with minimal monthly payments. While establishing credit is necessary it is more necessary that they understand financial responsibility first. Give them the fundamentals that they can apply in real life scenarios now and your guidance will carry them into their future.
