I’m a Financial Expert: How to Talk to Your Teens About Budgeting When They Move Out
In our world of credit cards, payment apps, and one-click purchasing, it’s easy for teens to never be exposed to actual money. But knowing how to create a budget, the difference between bad and good debt, and the power of saving can set your teen up for success when they leave home for college or a career.
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We asked Julie Meissner, CRCP, founding partner of Treehouse Wealth Advisors, to share her advice on how to talk to teens about all things money so they can become financially savvy adults.
Talk Often
Unfortunately, in many homes, talking about money can be seen as awkward or unseemly. According to Meissner, the topic of money should never be seen as taboo.
“Talking about money regularly can help your teenager become more comfortable with the subject,” she said. “A teenager’s desire for a new prom dress can open the door to a conversation about the cost per wear or alternatives like Rent the Runway. Decisions about a teenager’s car choice can include discussions on the price of long-term maintenance, replacement parts, or premium versus regular fuel.”
Talking about responsible spending makes the conversation less uncomfortable and helps your teen develop financial skills.
Give Them Agency
Allowing your teen to be part of the decision-making when it comes to spending that involves them is one of the most powerful tools in a parent’s arsenal.
“Running through options with them helps, but putting them in charge of their spending is even better,” said Meissner. “By getting them involved and in charge of certain aspects of their financial lives, you can help them learn how to build their money muscles.” That experience and confidence will become invaluable when they’re on their own.
Provide Resources
Adding other opinions and voices to the budgeting conversation is a good thing, particularly with teens’ hesitance to listen to their parents. But fear not, said Meissner. “Many great books, websites, and articles can help high school students learn about money. By providing these resources, you can ensure your teenager gets the information they need to make responsible financial decisions.”
Messnier’s list includes:
I Want More Pizza by Steve Burkholder
I Will Teach You to Be Rich by Ramit Seth
The Early Investor by Michael Zisa
Why Didn’t They Teach Me This in School? by Cary Siegel
Teach the Value of Money
Most would agree that earning a dollar teaches important lessons. Meissner advised that, if possible, encouraging your teen to get a part-time job can be more valuable to them than the money they earn. “It’s also a good way for them to start building up their savings, learn about taxes, and gain respect for earnings,” she said.
Explain Budgeting
Making a budget is a skill that often needs to be taught. “By showing them how to track their income and expenses and set aside money for savings and emergencies, parents can give their children the tools they need to manage their finances successfully,” Meissner said.
Fortunately, you have a lot of high-powered help through apps like Mint, YNAB and others. Have them explore each and pick the one that best fits their needs.
Encourage Savings
With Americans’ personal savings rates near record lows, the importance of financial responsibility and saving for the future is important to teach early. Meissner said a good way to do this is having your teen set up a savings account and matching their contributions.
“Set up a schedule to track their financial progress and celebrate milestones,” she said. They will see real growth and, hopefully, learn and be encouraged by their progress. This is also a good place to teach them how compound interest can work for (and against) them.
Discuss Good vs. Bad Debt
While debt is not inevitable, if you’re an American, it’s highly likely. But, said Meissner, not all debt is created equal, and teaching your teen the difference is one of the most important life lessons you can deliver.
“It’s vital for your child to understand the difference between good and bad debt so that they can make smart financial decisions in college and beyond,” said Meissner. “Good debt is when you borrow money to buy something that will increase in value or generate income. Bad debt is when you borrow money to buy something that will decrease in value or doesn’t generate income,” she said.
For example, taking out a loan to buy a home or start a business could be considered good, responsible debt, she said. But putting a vacation or big wedding on a credit card is probably not a great idea.
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This article originally appeared on GOBankingRates.com: I’m a Financial Expert: How to Talk to Your Teens About Budgeting When They Move Out
