Teaching Your Teen Finances
It can be difficult trying to help your teenager properly navigate the world of finances. What if your finances aren’t where they need to be? What if you lead them down the wrong path? What if you give them wrong information and they make bad decisions? There are countless questions you may ask yourself which can make this task even harder. Luckily, there are ways that you can walk your teenager through the aspects of the financial world in order to best prepare them for the future.
Make Sure they Understand Debt
You want to make sure your teen understands the implications of debt and how to avoid debt traps. Special signing-on deals like zero-down financing, no interest for the first payment, etc. can lead to teens falling victim to debt. You want to break down their understanding of bills, and why a decision in the short term with instant gratification can end up hurting them in the future.
They Must Understand Credit
Once they turn 18, they will be able to open up a credit card. However, that can be an issue because they may affect their score by not properly handling their credit. You want them to understand that they shouldn’t max out their credit line just because the credit is available. Instead, they should keep their utilization at 20-30% in order to keep their score looking right. You also want them to understand the importance of hard inquiries versus soft inquiries and how that can affect their score. On time payments, utilization, inquiries, are all aspects that they need to properly understand in order to best build and maintain a good credit score.
According to Time, 44 million Americans have a combined total of $1.5 trillion in student debt. That means that roughly each person has over $33,000 of student debt that they owe. The choice of college can greatly impact how they deal with debt later on in life. You should have them think smarter, not harder. They can go to a community college to get their general education credits and finish their degree at an affordable, yet reputable college that they like. This will allow them to still think smart about their money yet be able to get the degree at the school they want.
Your teen should know the value in patience. When they start making financial decisions, you want them to be able to understand why they need to compare when they shop. They should know to look online, look for deals in store, and compare prices when making purchases. This will teach them how to find the best deals possible and still save money!
Keep Track of Finances
Teens have a lot going on in life. That is why it is important that they understand how to properly track their finances and set a budget for themselves. They want to be able to take their post-tax income, figure out their bills, and set goals they need to reach. Even keeping track of daily purchases will help them get into good habits to understand where their money is going!