5/21/09

Parenting Teens: Three Money Management Tips to Teach Our Teens

. 5/21/09

The more financial knowledge we can help our teens acquire the better their money management skills will be. From the basic knowledge, such as knowing how to write a check, to the more complex, such as being able to discern between good and not so hot credit card terms, our teens need to leave the nest prepared to use their financial knowledge as a useful tool in creating their life. Here are three points to make sure you cover with your teen:

Understanding Financial Terms. A CD is more than just an old-fashioned way of listening to music. It’s also a way to save money. Don’t assume your teen knows exactly what different savings instruments are available to them or how they work. Knowing how a traditional savings account differs from a CD or exactly what a money market
or mutual fund is, is information they need to know in order to eventually make wise decisions as to where to place their money. Be sure they also know the difference between a bank, credit union and brokerage house as well as between a US Treasury bill, note and bond.

Getting the Right Checking Account. Eventually your teen will probably need a checking account and they need to know not to grab the first one they see or just use the bank closest to home. The best checking account is the one that is totally free. (As well as being closest to home!) This may require some leg work and research to find but it is well worth the trouble. Help your teen develop an understanding of how a checking account works and they will naturally be better able to ask the right questions to get the information they need to make a good decision. For instance, once they understand that a bank is in business to make money, they will be more aware of how the bank intends to get it from the account holders. Is there a minimum balance required to maintain the free status? What is the policy for fund availability? Does the account have overdraft protection, and if so, does that involve an additional fee? There are a several things we need to teach about maintaining the checking account; such as how using a ATM or debit card responsibly requires maintaining a few good habits, such as making sure to always enter a withdraw in the check registry and knowing how to successfully avoid surcharges. Also, while it may be an easy exercise to show your teen how to write a check, making sure they understand how to keep and reconcile their checkbook may take a bit more time. Fortunately, most teens are pretty excited about getting their first checking account and are more than willing to learn.

The Credit Card. It needn’t be a given that every young adult needs a credit card. Sometimes the need for a card can be put off well into the twenties. However, every teen needs to develop an accurate picture of what behaviors produce what results when using a credit card. Using a card as a way to live beyond ones means is a sure way to create problems, where as responsible credit card use might be considered just another way of handling ones expenses. Knowledge of the credit card game should come long before the actual acquiring of one. Teens need to know that it is not only possible but also desirable to live a debt-free life and that one of the biggest obstacles to that goal is often the credit card. Credit card companies will seek out your teen and your teen needs to be armed with the knowledge to make responsible decisions from the very beginning of their credit history. Be sure to teach your teen the ins and outs of the credit card. Go over what terms and behaviors are favorable and which ones will get them in trouble. Show them what to look for in an interest rate, that it’s not only about getting the lowest rate, but also one that is calculated on a one month not two month balance. Explain to them the different categories interest rates can be calculated on. Don’t assume they know all the nuances of how to use a card and don’t hesitate to find out information that you yourself may be a little fuzzy on. Teaching our teens about money can be a great time for an examination of our own money management skills.

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