10 Money Topics to Cover with your Teenager
Talking to your teenager about anything, let alone money, can be difficult!
Recent studies, however, have found financial literacy and handling finances is something teenagers want their parents and/or guardians to discuss with them. Imagine that! Teens want to discuss money with their parents/guardians.
So parents and guardians, here’s your opportunity to build a solid financial footing with your teenager(s)!
1. Wants Versus Needs
- In discussing “wants versus needs,” the first step is getting your teenager to understand the difference between the two.
- Obviously, food, shelter, and clothing would constitute the essential needs of life.
- By contrast, fancy cars, designer clothes, and jewelry represent aspects related to the “want” categories of life as opposed to the “needs.”
- But what about some of the more convoluted aspects of modern life?
- That is, those not necessarily needed but required in today’s world.
- For instance, cell phones, internet access and technology may not be necessary but are certainly required.
- After all, such is necessary for everything from school research to job searching, but does come with a cost.
- So, answering to the wants versus needs question may not be as black and white as it once were.
- As such, having this conversation with your teenager is an essential money topic to discuss.
2. Banking Basics – Savings and Checking Accounts
- Savings and checking accounts still represent the basics of banking.
- From monthly fees to minimum balances, overdrafts, and ATM access, discussing these banking aspects with your teen is a must.
- Unlike previous generations who used a ledger to balance a checking account, today’s teenagers live in a world of digital banking where an updated account balance can be instantly seen.
- Nonetheless, the concept behind account balancing remains the same.
- As such, be sure your teen understands this as well as other features associated with digital banking like remote deposit capture, bill pay, person-to-person transfers, etc.
3. The Difference Between Debit and Credit Cards
- People often use the terms debit card and credit card interchangeable but, be rest assured, they are quite different.
- So be sure you, as the adult, understand the difference between debit and credit cards prior to discussing with your teenager.
- Simply stated, a debit card ties to a checking account and gives you access to money you have.
- It is important teenagers understand not to spend more than the amount of money in their account in order to avoid non-sufficient funds and overdraft fees.
- Again, they must know how to “balance” the account.
- A credit card, by contrast, gives you access to money you don’t have.
- Thus, a credit card is a loan or line of credit you must pay back.
- In teaching your teenager about credit cards, the importance of paying off the balance on a monthly basis cannot be emphasized enough.
- Carrying a balance on a credit card or simply making minimum monthly payments results in interest rate charges which grow monthly due to compound interest (see #4).
- So, it is important teenagers understand the best use of a credit card is to create a budget which results in a monthly payoff of the outstanding balance.
4. Compound Interest – The Price of Debit
- While discussing the importance of paying off credit card debt, conversation regarding compound interest will naturally emerge.
- Simply stated, compound interest is interest added not only to the initial amount of a loan, but also accumulated interest from previous periods.
- So, when credit card balances are not paid off monthly or only minimum monthly payments are made, the outstanding balancing has interest charges which will build upon previous interest charges.
- For example:
- If you have a credit card balance of $1,000 with an annual percentage rate of 10%, then the monthly interest charge would be roughly $8.34 ($1,000 X 10% = $100 / $100 ÷ 12 (months in the year) = $8.34).
- In the event do not make a payment by the time the next monthly payment is due or your balance of $1,008.34 remains the same for another month, the interest on the original $1,000 balance would now be $16.75 ($1,008.34 X 10% = $100.84 / $100.84 ÷ 12 (months in the year) = $8.41 / $8.41 (second month interest) + 8.34 (first month interest) = $16.75. New credit card balance = $1,016.75 due to compound interest charges.
- Thus, due to compound interest the need to payoff or keep credit card balances at a minimum cannot be overstated.
5. Compound Interest – A Good Thing When You Save
- Just like compound interest is a hindrance when paying off debt, it is a benefit when it comes to savings.
- In this case, compound interest is interest added not only to the initial amount of a deposit, but also accumulated interest from previous periods.
- So, let your teen know if he or she earns interest on a deposit and does not touch the resulting amount, then he or she will earn interest on the interest previously earned.
- A simple example is this:
- If $1,000 is put on deposit and earns 5% annually, then the resulting amount would be $1,050 ($1,000 X 5% = $50 / $1,000 + $50 = $1,050).
- If the $1,050 is left alone and earns another 5%, then the resulting amount is $1,102.50 ($1,050 X 5% = $52.50 / $1,000 + $50 + 52.50 = $1,102.50)
- The premise here is teaching your teenager how a small amount of savings today can develop into large savings over time.
6. Fraud and Identity Theft Protection
- You may think fraud and identity theft only happens to “adults,” but according to the Federal Trade Commission 25% of teenagers will be affected before the age of 18.
- One of the main reasons for this is quite simple – social media.
- Undoubtedly social media plays an important role in the lives of today’s teenagers, and the free sharing of personal information is what greatly contributes to the fraud and ID theft which is occurring.
- As such, it is imperative teenagers understand the importance of protecting all their personal information, including social security number, passwords, account numbers, PIN, etc.
- Discussion should also include strong passwords usage, frequent changing of passwords, as well as third-party providers who assist in both prevention and assistance.
7. What Jobs Pay
- One important money topic to discuss with your teenager is, well, money.
- That is, how to make it!
- And one way to help your teenager better understand how money is earned is by discussing various professions and job opportunities along with accompanying pay.
- Doing so will not only give your teenager a better perspective on potential career paths but, more importantly, the educational requirements necessary to achieve such success.
- They may even discover the longer the stay in school, the more money they will earn over their lifetime.
- And one way to get your teen to start think about jobs and accompanying salaries is by visiting websites such as salary.com and glassdoor.com.
8. Making a Budget
- In fact, it’s not a bad idea to share your actual household budget with your teen.
- However, if this is a little too personal for you then develop a mock budget based upon the same categories you have – house payment/rent, utilities, groceries, entertainment, etc.
- Doing this will not only give your teen perspective on the cost of living, but also help him or her develop money management strategies.
9. Having Good Credit
- Perhaps the best way to explain what a credit score is to a teenager, is to compare it to a report card.
- Like a report card, a credit score indicates how an individual has handled his or her finances in the past and is a good indicator on how they will be handled in the future.
- So, if someone has not paid on his or her debts or is continually late in making payments, then this would be reflected with a low credit score.
- Conversely, individuals who make timely payments and make good on their financial obligations are rewarded with a good credit score.
- And, having a good credit score not only means being approved for loans and additional credit, but also paying a lower interest rate on what is borrowed than an individual who has a low credit score.
- So, it’s a win-win – winning because creditors want to lend you money and more winning because you will pay less on what you borrow!
10. Setting Financial Goals
- Financial goals are just like any other type of goal – you gotta have a plan to make them happen.
- Let’s face it, saving money and achieving financial goals takes conscious effort – it doesn’t just happen!
- When doing so, however, here are a few things your teenager should know:
- Can’t Do Everything at Once – It is important your teen understands in order to achieve a large goal, smaller ones must be achieved along the way. So, they need to start with a specific goal that is measurable and achievable.Add to It – Once an initial goal is met, add to it.
Research has shown the main way teenagers learn to handle their finances stems from what they learn from their parents/guardians. Simply stated, teens follow what they see. So, as you teach your teenager the correct way to handle his or her finances be sure to pay close attention – you may just be helping yourself!
Resource: https://go.hfcu.org/blog/the-money-talk-10-topics-to-cover-with-your-teen