Parents play an important role in preparing their children to be financially responsible adults. Our first article on this topic explored five ways to teach young children about money, and in the spirit of financial literacy month, we’re offering this follow up article on creating financial awareness and instilling money management skills in your teenager.

By the time youth enter high school, many of their spending habits and financial values are already established, so starting early to get them on the right path can make a big difference in their financial future.

Once your child reaches their teens, consider talking to them about more complex financial topics, such as investing, taxes, credit, budgeting and college loans and scholarships. Here are some areas to explore with your teen:

1. Open a joint bank checking account

A checking account allows teens to track how much they have, conduct transactions independently and monitor what they’ve spent. Opening the account as a joint account allows you to be actively engaged in monitoring the account to ensure your teen is handling it capably. Most banks also provide online banking, so you and your teen can view account activity 24 hours a day. While checks are available, a VISA debit card is now the preferred method for teens to make purchases and withdraw cash.

For added safety, restrictions can be applied to prevent spending more than the available balance, and fraud monitoring systems alert you when suspicious activity is detected on the card. And once your teen gains employment, direct deposit of payroll to this account is safe and convenient.

It’s important to have a discussion on the consequences of using more than what is available in the account when adding payments by check or automatic withdrawal. Overdrafts create fees that can add up quickly, and accounts not managed properly can result in a negative record at check reporting agencies.

2. Open a brokerage account

By the time your kids are in high school, they’re old enough to learn the basics of investing. Using their own money is an eye-opening experience for a young, first-time investor. Setting up a custodial brokerage account allows them to set aside a modest amount of money and pick stocks to purchase.

Encourage your teen to research companies and see how the market affects their performance over time. Mutual funds also offer the same experience for learning. Consult your broker for the differences and details.

3. Open a student credit card

Many parents discourage the use of credit cards, but a credit card can be a good lesson in using credit responsibly. It’s the first step in establishing credit, but it needs to come with a strong warning on the pitfalls of excessive spending. Excessive debt can lead to future problems, such as higher interest rates, higher car insurance rates, trouble renting or obtaining a cell phone, inability to purchase a car or home, and difficulty securing a job.

Responsible credit card use means being able to pay in full what you charge each month. If you can’t, interest charges accumulate and payments can eat away at savings. If used properly and paid monthly, it’s a convenient method of payment. And an added perk is that many cards offer cash back rewards on every dollar spent!

teaching teens about money

4. Involve them in grown-up money discussions

Most kids work part-time in high school. This provides for lessons in gross and net pay and learning how taxes work. Showing teens how your tax return is prepared is a valuable experience in demonstrating how adults have to make choices when it comes to money.

You want your teen to have the whole picture, so include them in making your financial decisions. For example, when you’re purchasing a home or car, bring them into discussions on negotiating the purchase price, down payments, interest rates, payments over time, and retaining money for taxes, insurance and upkeep.

5. Apply for student loans and scholarships

The cost of education is rising faster than the rate of inflation.  This makes a strong case for the need to obtain a higher education scholarship to reduce tuition cost.  It’s more cost-effective to apply for scholarships now than to face large student loan debt in the future. Colleges have different scholarship options available based on the student’s ACT score, with more money and full-rides available for students with higher scores.

When scholarships aren’t an option or enough, applying for student loans and budgeting for post-graduation repayments are two important pieces of the financial puzzle.  Parents must help kids understand that payments for education loans need to be subtracted from the budget after graduation and can affect their mode of living.  That may help entice them to study harder for that scholarship!

While managing your money should be an ongoing discussion with your teens, financial literacy month is a great time to brush up on the basics. Read our other articles on this topic, and share your knowledge with your teens. Every conversation you have with them today will better prepare them for tomorrow!

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