Teens and young adults aren’t yet experts at managing their money. Fortunately, covering the basics doesn’t take much time. Here are the 4 most important things to teach teens about managing money throughout life.
Things to Teach Teens About Managing Money
1. Save More Than You Spend (Or at Least Try to)
The advice to save more than you spend is excellent, if not a bit dated. Still, young adults learning to manage their money should aim to set aside a percentage of all their income. Saving money early in life means higher returns on their investments. Whether it’s a savings account that accrues interest or a diverse investment portfolio, building on existing income is a smart strategy for any young adult.
One impressive example comes from DaveRamsey.com and involves a breakdown of two theoretical investment scenarios. The comparison proves that investing earlier—even if it’s for a shorter duration—can earn better returns over time.
2. Avoid Credit Cards and High Interest
Another one of the things to teach teens about managing money are credit cards. For many newly graduated adults, obtaining their first credit card often feels like a milestone. Credit cards can be a great tool to help you build credit while earning rewards and points. But it’s not a desirable achievement for most. TheStreet reports that at least 83 percent of adults in the United States have a credit card. 55 percent of debtors don’t pay their credit card balance off each month.
Living with debt can be crippling, both in terms of the stress it causes and the limitations it puts on your daily life. And things don’t usually get better later in life. Figures suggest that the more money you have, the more you tend to spend in credit.
Young adults need to learn to manage their money without credit cards to stay on a debt-free path. But for those who need a credit card, comparing interest rates and introductory offers is key.
3. Learn to Create (And Stick to) a Budget
Many adults struggle with creating and sticking to a budget. Therefore, it’s a vital tool for the younger generation to learn. Budgeting should start with outlining incoming and outgoing cash flows. Then teens can look at where they’re spending their money and how they can manage it better.
Young adults looking to move out on their own should investigate housing and transportation costs. Living away from home, managing a household, and purchasing groceries can be much more expensive than teenagers realize.
NerdWallet recommends the 50/30/20 budget. This plan revolves around using half your income for basic needs and 30 percent for “wants.” The remaining 20 percent goes to your savings (and debt repayment, as applicable).
Needs cover items like:
- Fitness/health memberships
- Eating out
Twenty percent should go toward your savings or investment account. Even starting an emergency fund with a fifth of your monthly income will pay off over time.
4. Think About Basic Bills (And Plan Accordingly)
Some necessities are more expensive than others. Translation? Kids on the cusp of becoming adults need to have their priorities straight. For example, paying for the most current smartphone might be a priority for many teenagers. But paying for auto insurance, for example, is not only required by law—but it can also be a significant investment.
Teens who are about to begin driving need to know that automotive insurance is mandatory in almost every state. Minimum requirements vary by state as well. Some specify liability as the only necessity, while others require higher coverage for teens.
In general, teenagers can expect to pay more for insurance because of their inexperience. Insurance companies consider young adults more of a risk because they lack the driving experience older adults have. Premiums can even be higher based on gender, another crucial consideration when shopping—and budgeting—for coverage.
The same thing applies to colleges. For teens who are seniors in high school, it’s important to start thinking about a higher education, if this is something that interests them. If they want to go to school but are concerned about the cost of traditional colleges, online options may be a great alternative.
In addition to being cheaper, online universities let people set their own schedules so they can work around other obligations in their lives. They also offer a number of different programs aimed at many different fields and industries.
Ultimately, with a firm grasp of the financial information that most influences their lives, teens will feel more prepared to tackle adult life without help from their parents.
Things to Teach Teens About Managing Money – Summary
The earlier you learn about managing money, your finances, and budgeting the better. It is never to early to teach the younger ones in your life about these topics. It will ensure that you provide them all of the necessary tools to have a strong financial future. Be sure to cover the things to teach teens about managing money discussed in this article.
For more articles like this, be sure to check out the financial planning section of our site.