The 2021/2022 school year is beginning and your kids are eager to get back to activities, sports, friends and...their education. However, schools aren’t teaching the fundamentals when it comes to financial education. Luckily, that’s what we do best.
Invest early AND invest often.
Now when we say invest often our minds immediately go toward the stock market. We actually mean to invest in the sense of their future, more than likely, in the form of savings. Saving for the future, whether it's for a car, a home or retirement, doesn't seem like something that a teen should be overly concerned about but starting them early and relaying the benefits of continued investment (or savings) will allow them to fully realize the benefits over the long run.
It happens. Your teen needs to borrow money and, naturally, they come to you to tickle the heartstrings and try and get that extra $20 for the movies or the $200 for that new bike. There will always come a time when your kids need to borrow but it's important to teach them how to do it wisely. Long term, a good credit score will help them get a better rate and pay less interest over the course of whatever loans they need to get in the future. Setting this framework early is crucial to building strong long term financial habits. Here's some tips to get them started:
- Teach them the difference between "Good" and "Bad" debt: Explain that "good" debt is an investment toward their future (reminder about a mortgage, student loans or small-business loans AND that "bad" debt is carrying a balance on your credit cards or a car loan.
- Make it relatable: Question them on the importance of the item or activity they are borrowing money for. They and you may discover that the reason that they want the loan is not sufficient
- Have them pay you back: Depending on what, and the amount, they are borrowing for you might consider having them pay you back. Discuss with them payback "terms" whether that is a certain amount per week or monthly. Letting them know that they will be accountable for paying back money and holding them accountable for that amount is a good way to teach them longer term.
Let's face it. Budgeting is hard. Get your teens in the habit of tracking their spending by having them build a budget. This will help them realize where they can cut costs to start saving and investing toward their future.
- Trade offs: Teach them that strong financial behavior involves tradeoffs. Do you need to buy lunch every day at school or could you pack a lunch? How much money would they save by packing a lunch? $20 a week? $80 a month? $960 a year? Teaching them small tradeoffs that they can make is a helpful tool to show them the long term value of the little decisions they make.
- Savings goals: Setting savings goals is an easy way for teens to budget their money by saving toward a topline number. Have them set a savings goal of $100, once they reach it, expand it. This also helps them learn to save for the things that they want.
Splurging is ok but don't live beyond your means.
We all know that little things add up. Daily coffee, Netflix subscriptions, clothes, the latest and greatest shoes - all of these items can get spendy very quickly. It's important to teach your kids that they can treat themselves occasionally but to always, always, always make sure that their spending isn't out of control. A great way to teach kids this lesson is to encourage them to take on a summer job or to take on side gigs when possible. Having their own money will give them an opportunity to treat themselves once in a while, when they deserve it, and more importantly, only if they can afford it.
The school year is off and running but learning doesn't stop in the classroom. Let's set our teens up for financial success by making small changes and talking to them about finances.