Good money management isn’t just for adults -- it’s also for young adults and teenagers. But unfortunately, some people don’t develop good money habits until they reach adulthood. By this time, many have developed poor financial management skills. The truth is, when money lessons are taught and developed during the teen years, it can result in a better financial future. For that matter, here are five money management tips for teens.
1. Demonstrate work ethic
Before teens can learn how to manage money, they must earn money. There are several ways for teens to earn money and demonstrate their work ethic. If they’re old enough to get a job, working part-time after school or on the weekends teaches the value of a dollar, plus teens learn at an early age the importance of working for the things they need or want. For those who are too young to get a job, they can look for other ways to earn money. For example, parent can give a reasonable weekly allowance for completing chores around the house or babysitting younger siblings.
2. Save for a rainy day
Most teens aren’t thinking about saving their money. In their minds, they have a lifetime to worrying about saving. However, a good savings habit starts early. Whether income comes from an allowance or a part-time job, teens should develop a habit of saving about 10% of their earnings. This can help them reach financial goals, such as buying a car or taking a trip with friends after graduation. Also, the sooner teens start saving, the bigger their nest egg once they become an adult.
3. Create a budget or spending plan
Parents should require teens to pay some of their personal monthly expenses. Thus, they get into a routine of managing money at an early age, and bill paying doesn’t come as a shock once they’re on their own. Teens who have a cell phone or a car can contribute to these expenses, perhaps by paying their own cell phone bill or buying their own gas or car insurance. To create a budget, teens need to add up their monthly expenses and subtract this number from their monthly take-home pay. With the surplus, they should deposit a percentage into savings and set aside cash for miscellaneous expenses.
4. Think twice before buying
Once a teenager gets a first job, he might excitedly buy everything he wants. But in life, we can’t always get what we want. And the sooner teenagers learn this lesson, the better. Therefore, it’s important for teens to avoid impulse buys. It doesn’t matter if there’s a sale or a discount. Teens need to consider the consequences of a purchase, and it helps to “sleep on” purchases. This involves leaving the store and taking a few hours (or a few days) to contemplate whether they really need the item, and whether it’s smart to spend the money.
5. Be careful with credit cards
Just about every teen wants a credit card. Getting credit is a rite of passage into adulthood, and a way for teens to establish credit at an early age. However, according to the Credit Card Act of 2009, no one under the age of 21 can get a credit card unless they can provide proof of sufficient income or have a cosigner. If a teen is eligible for a credit card, it’s important that he uses credit responsibly. For example, he should only charge what he can afford to pay off each month. Carrying a credit card balance from month-to-month results in higher interest charges. And since the amounts we owe make up 30% of credit scores, high balances and maxed out credit card accounts can reduce credit scores and make it harder to get loans.
Nobody expects teens to know everything about money management, and they’ll probably make a few money mistakes. However, with a basic understanding of how money and credit works, teens can recognize mistakes before money problems get out of hand.
photo credit: Flickr