Parents play an important role in preparing their children to be financially responsible adults. By the time teens enter high school, many of their spending habits and financial values are already established, so starting early can make a big difference in their financial future.
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. A joint account allows you to be actively engaged in monitoring the account to ensure your teen is handling it capably. Most banks 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.
Discussion about the consequences of using more than what is available in the account when adding payments by check or automatic withdrawal is necessary. Overdraft fees can add up quickly, and accounts not managed properly can result in a negative record at check reporting agencies.
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.
Fraud and security issues are continuing to increase at rapid speed. Teenagers are easy targets due to their naivete on money matters, trusting nature, and use of more electrical modes of payment and finance. With the use of checking accounts and debit cards comes not only responsibility but the possibility of fraud and the need to review records carefully, use only secure sites with trusted financial partners, and more. Learn more about how to detect fraud with our financial security articles.
2. Open a brokerage account
Once 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
Credit cards can be a polarizing topic, but a credit card can be a good lesson in using credit responsibly and establishing credit. 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, 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!
4. Involve them in grown-up money discussions
Most kids work part-time in high school, which provides lessons in gross and net pay and how taxes work. Showing teens how your tax return is prepared is valuable. It demonstrates how adults have to make choices when it comes to money.
You want your teen to have the whole picture, so help them understand how you make 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
While the cost of education has stabilized over the past couple of years, the urgency for scholarships is unchanged. 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 grades or test scores, with more money available for students with higher scores.
When scholarships aren’t an option or enough to cover the full tuition costs, 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 their budget after graduation and can affect their mode of living. That may help entice them to study harder for that scholarship!
There are many great programs today that teens can use to gain more financial literacy. Read our other articles on this topic and share your knowledge with your teens. Preparing them today will better prepare them for tomorrow.