How to teach financial wisdom to your teen?
Teach financial wisdom to your teen: Money management is a crucial skill for teens. Just as your teens take guidance about all other things in their teenage phase, your teens also need to know about value of money and money management in a proper way.
This article is all about how you can teach financial wisdom to your teen.
Topics we have covered in this blog
- Why Teach financial wisdom to your teen
- 6 Financial terms your teen should be clear about
- 12 Thingsyour teen should know to have financial wisdom (What to teach)
- How to teach financial wisdom to your teen
Why Teach financial wisdom to your teen
According to a research 70% of teens at college grade stated that they learn money management from their parents.
So as a parent it’s our responsibility to deliver proper knowledge to our teens about “How they can manage their money’’.
In few short years they will be on their own. Managing their own finances.
And you will be in peace if you have effectively imparted the needed financial wisdom to thrive in the world.
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6 Financial terms your teen should be clear about
Many teens may usually outwardly appear to be experts in finance management when parents try to talk them about money.
I want to share my own conversation about budgeting with my daughter. One day I spoke to her about money and she told me “Mom I already know how to spend money in a balanced way’’. I was surprised and happy.
So I asked her some of the questions I have given below and when she threw a blank we started our journey where I was able to teach what I know of financial wisdom to my teen.
You could also face similar situations.
I have outlined the most basic of financial terms that your teenager should know.
You might even try to skip this paragraph thinking that my teen does know about it.
However, take a minute to read the 6 terms and know for yourself if your teenager is completely aware of what they mean.
They should not only have the knowledge of these terms, but they should also know how to apply them.
(Definitions taken form dictionary.com)
Money received, especially on a regular basis, for work or through investments.
Ask your teen the sources of income they know of. What is the income your family is getting and from which source.
The cost required for something; the money spent on something.
Ask your teen what they think your monthly household expenses. Ask them what they think is your household’s highest expense and how much?
An economy of or reduction in money, time, or another resource.
Ask your teen who they think saves the most in the house? Ask them why the house has to save. How much they think they should save every month.
A useful or valuable thing, person, or quality.
Ask your teen to name some types of assets. Ask them to call out the assets they think the family has. Point to items in your house and ask if they are appreciating or depreciating assets.
The state of being responsible for something, especially by law.
Ask your teen what financial liabilities means. Tell them to name one or two liabilities that the family has (it can be your rentals to bills to anything).
Something, typically money, that is owed or due.
Ask your teen about the types of loan available. Ask them if they know what EMI means? Ask them if they are aware of any loans the family has taken and for what?
12 Things your teen should know to have financial wisdom (What to teach)
Many teens do not earn in teenage phase. Parents too, don`t expect their children to work and earn from jobs from in their teenage phase.
But one thing you can do is to encourage your teen to earn an allowance by doing simple household work like cleaning of their homes or their siblings’ rooms or help siblings in their studies.
By this way they not only learn responsibility, but they will also take part in their home issues. This is important inorder to teach financial wisdom to your teen.
However, I personally do not pay my teens for doing chores as I feel it needs to be done as they are part of the family. But I do give them incentives.
For instance, my daughter takes care of weekly expenses of the house. Such as milk, eggs and adhoc expenses. She gets INR 700 a week and whatever she saves I let her keep it.
My Son maintains the house electricity budget. And for every penny he saves I pay him double. But for every penny he overshoots he pays from his pocket money.
He runs around the house switching off lights, fan etc… And because of this all in the family are very aware of electricity usage.
According to a research 69% of the generation born from mid-1990- early 2000s say that they do not know exactly about earnings and savings.
They do not know how much to spend and how much to earn. Therefore knowledge on budgeting is also very low.
This is not a good thing at all. Budget is the best way to manage and spend money in balanced way.
Tell your teens how they can properly take care of their expenses by budgeting. To impart financial wisdom to your teen, teach them the basics and sit along and make their first budget. Teenage phase is the perfect age for learning about budgeting and creating a budget.
These days there are also many apps that can help teens to take care of their money right on their mobile phones. You can also enlighten your teen about these tools and help them and show how they can use these apps.
But I would encourage the old-fashioned way of having it written down.
Teach your teen about financial planning. Remember financial planning is very different from budgeting.
Financial planning has 3 steps. Teach your teen on how to identify their financial goals, look at what their current situation and make a step by step plan on how to achieve them.
I have this done for all my three kids, they have it written and pasted where they can see, and they strike out as and when they reach their goal. This is a good way to teach financial wisdom to your teen.
They say, ‘Put your outdoor work in order and get your fields ready; after that, build your house’.
Teach financial wisdom to your teen by teaching them how to set priorities. While in the above saying tending the field is also important and building your house is also important and both are part of needs.
Here is where your teaching is important. Where you teach your teen how to prioritize between to needs and how to go about achieving it.
Ask your teen What the above proverb means. Give them a hypothetical situation and ask them how they will prioritize and guide them with your insights.
Teach them on emergency funds. Tell them the difference between savings and emergency fund.
Teach them that emergency fund should be easily accessible and in liquid in nature where they can draw it if there is an emergency.
Teach them that they need to prioritize emergency fund first and how much they should have (common wisdom is 6 months of your expense).
Ask your teen what they consider as emergency? Ask them how and where they will hold the emergency fund.
Encourage your teen to save money/ Savings
It is also a good idea to encourage teen for savings. These savings can be a few bucks.
This is good way to teach financial wisdom to your teen. Once your teen starts receiving their pocket money, you can encourage them to save a few bucks every month as your savings.
You can motivate them by talking about your savings and benefits of savings.
You cant teach financial wisdom to your teen without teaching what investment is. Teach them that they should not put their eggs in one basket. Teach them why you are saying it and the wisdom behind this.
Ask them what investments they will do when they are big. It will be nice to know what they think and if need be you can influence their thought process.
Teach them how they can spend wisely
Teach them how they can spend money smartly and wisely. Tell them how they can get rid of habits which drain your budget.
You can also tell them how they can use their student card for purchases to get off on things. There are many services around for students, like in hospitals or shopping malls.
Encourage them to use such services and take advantage of their student card. By this you not only teach financial wisdom to your teen you are also making them smart.
Open Bank accounts and teach them on credit cards
These days all the processes of finance is all digital.
So, it is wise on our part to teach them about how the digital world works as part of your quest to teach financial wisdom to your teen.
Start with opening a minor bank account for your teen. Get them their own debit card and transfer their allowance to their bank.
Teach them on credit cards also; teach them how they work, on interest charged, minimum due, risk, and discipline needed to use it.
Give them all the good, bad, and ugly of the credit card so that your teen thinks not twice or thrice but ten times before getting one.
Teach them about compound interest
Teach your teens about compound interest. Tell them how they can use compound interest technique for earning.
Tell them how they can earn by setting aside a little amount of money every month.
And how adding a little money every month they can get interest on their money.
I took a pen and paper and showed my daughter month on month for a 5 yr. period how Rs. 100 every month she saves with a 1% interest will give her the money needed to buy her own phone in 5 yrs. time.
She has now saved not just for the phone but also for the phone monthly usage bill also.
Discuss the Difference of Need & Want
It is very important to teach your child the difference between need and want.
Some teens don`t realize the difference between both. You can teach your teen with examples. For instance, you can say “understand mobile phone is your need but an expensive smart phone is you want’’
You can also say it’s a need if you need to be driven to school or college but if you demand for your own car it’s a want not a need.
Teach your teen to be content
“Mom! my friend bought a new car I also want to own a car’’
“Mom! my friend got to go to a foreign country for vacations. When will we go??
“My friend bought a new dress I also want to buy the same dress’’ Many parents must be familiar with such demands.
Sometimes, this situation becomes difficult for parents as they don`t know how to answers such questions and demands.
But to avoid this, as part of your journey to teach financial wisdom to your teen you should teach contentment to your teens. Teach them to count their blessings and feel grateful for the things they have.
Teach them how they can buy a good dress in normal budget also.
HOW to teach financial wisdom to your teen
With the WHAT to teach your teenager being said. Let us touch on the HOW to teach financial wisdom to your teen.
Set a good role model
Kids often mimic their parents in almost every behavior. So, to learn about proper management of money they will also follow their parent’s behavior.
So, if you take care of your expenses, your budget, and savings in a good way then there is a strong possibility your teen will also follow your behavior.
But if you often make impulsive purchases without any need or requirement then your teen is likely to follow your behavior and may be, they also spend money without any need.
That is why it is very important to set a good example for your teen. You can also include your teen in your budgeting or finances of your household. In this way, they can learn a better management of Finances from your behavior.
Motivate your teen to keep track of purchases
Motivate your teen to keep track of their purchases at the end of every month.
Teach them with a record of purchases they can know about their spending. You can also check receipts of your teens’ purchases at the end of month.
If you see any extra expenses and purchases, you can guide them how they can avoid extra expenses.
My grandma would force me to send her a mail once every 15 days on what I have spent, and she would analyze it and give her inputs.
Give some financial responsibilities to your teen
It`s very important for teens to know the value of money. When parents give them some financial responsibilities, they become more able to get clear idea about the worth of money and about expenses.
For example, you can give responsibility to your teen to get groceries of a week in strict budget. In this way they can learn about the value of money and costs of things.
This worked like a charm for my elder son. He started looking at MRP tags and value and quality at the same time and picks the best economical ones with good quality for the house.
He was given a fixed amount and he could keep what he saved. We soon found him cracking patterns of vegetables and would buy few extra of vegies that can last 2 weeks (onions, garlic, potato) when he gets a good deal. He also started finding wholesale shops and started experimenting with bulk buying to get offers and discounts. So, month end he still has money in his pocket.
Encourage them for a job
If you are worried about your teens’ expenses or large purchases without any requirement. Or if your teens demand extra money then you can encourage them to find a part time job.
This will encourage your teen to take care of their expenses with more maturity. Additionally, a job can prepare your teen for their future career too.
Help them find one as per their interest. My kids went to a mechanic shop to work and learn.
Give responsibility of your bank account to your teen
It`s also a good idea to give theresponsibility to handle any of of your bank account to your teen. Guide them about transactions process.
Give them a cheque to deposit or withdraw. Send them to make a DD for their fees. Update your passbook. Collect a deposit slip etc.
In this way, money management process for teens goes to the next level. And your teen will be prepared to manage accounts in a better way in the future.
Tell them the reality of social media (peer pressure)
As this is the era of internet and technology and teens spend too much time on the social media. Many people these days upload statuses of their high standards and high expenses.
Teens can get negatively influenced by such people. Or they may want to follow those standards. For this reason, tell them that there is difference between reel life and real life.
Teach them how they can spend a joyful and happy life with available resources. Teach them how their birthday parties and other events can become memorable without spending lot of money.
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If you do not feel like teaching your kid anything. At least teach them this. Introduce giving and sharing habits to teens. Introduce them to charitable habits.
Tell them how they can share and give things to poor and needy people. Let them experience the happiness of sharing and giving.
Teach them that giving has a pleasing effect on mind.
Encourage them to spend an amount of money for charity every month.
When they reach out to less privileged people, they will feel grateful for what they have and will think twice about all the other things such as spending lavishly etc.
Have Money dates with your teen
Have open conversations about money with teens. Try to have a money date every month with your teen.
On that date you can talk about your family monthly expenses and savings and about your future about earnings.
By this method, your teen will get accurate information about their family standard and money. This will also make them become more responsible about their expenses.
that also encourage them to have business ideas or other creative ways to help you with your financial needs. Who knows!
Encourage them to read books
Encourage your teens to read books about money management.
These books can help your teens to know not only about money management, but they can also learn about earnings or methods of earning and investments.
These books could prepare your teen for opportunities they have around them and how they can utilize these opportunities in a proper way.
Books open a whole new world to your teen. When you encourage your teen to read books, you are encouraging them to form a habit of seeking knowledge. And knowledge is the first step to gaining wisdom.
When you teach financial wisdom to your teen it is the first step in the right direction to have your teen become independent.
Teach them that money is not bad, and it is important. But also teach them that it is not the most important thing in the world.
When you teach your teen financial wisdom you will be teaching them how to control money so that money or need for money does not control their life.
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