Having faced the recent difficult economic climate, learning sound personal finance practices has become more important than ever. Teaching basic financial principles early can be a great way to prepare teens for a prosperous adulthood in which they are more likely to avoid the common money managing pitfalls that plague many adults.
Children often do not appreciate the value of hard-earned money. Children do not work jobs, and they are not familiar with budgeting. For this reason, learning to create and adhere to a budget is a critical basic skill that teens should learn first. Parents must assign the responsibility of managing the budget to the teen, and they should only intervene if a major problem arises. Teens should be given room to set their own priorities in creating their budget.
Another important skill that teens should learn is how to set long term savings goals. For some this may be saving for a car or perhaps for a post-graduation vacation or even college. The parent and child should sit down together and determine how much money should be set aside each month in order to eventually accomplish the long term savings goal. Long term goal setting teaches patience and can make teens less likely to be prone to the impulse spending that plagues many adult consumers. Furthermore, it is important that teens learn to manage money and make purchases without using credit cards. Allowing teens to use credit cards gives them the false sense that they can spend money that is currently unavailable without consequence. This leads to practices that can result in deep financial debt later in life.
Teens must also learn to create an emergency fund. Many adults find themselves needing to borrow money from lending institutions due to unexpected financial emergencies such as illness, job loss, or the need to make a large purchase, such as a major car repair requiring expensive auto parts. This can also trigger a sequence of events that lead to deep financial debt. Not only can having an emergency fund help minimize the impact of negative financial events, but building an emergency fund also teaches patience, as this practice encourages teens to manage money in such a way that would allow them added peace in the case of a negative event that may never actually come.
Teaching teens about charitable giving is also an important financial practice. Not only does charitable giving teach teens to contribute a percentage of their resources to serving a greater need, but charitable giving is rewarding in many ways, including tax benefits that are available to charitable adults.
By teaching good financial habits early, teens are far more likely to reap valuable lifelong benefits of good management.