Staying out of debt can be challenging for anyone, which is why it’s so important to teach young people how to manage their finances responsibly. Learning how to budget, handle credit card temptation, and keep their credit score in good standing can prevent issues when your teen or young adult child is ready to buy a car or house. It can also give them the tools they need to make responsible choices when they’re older. Following are some tips on how to help them get a good start.
1. Make Sure They Have a Firm Grasp on How Credit Works
Opening a credit card can be extremely tempting to a young person, especially when they’re offered discounts on purchases. Make sure your child understands the responsibilities that come with opening a credit card and the lasting impact it can have on their credit score. Talk with them about the damage credit card debt can do to their finances if they’re unable to pay the balance on time, and about the importance of paying attention to the APR (annual percentage rate).
2. Show Them How to Budget
Learning how to create a budget will allow your child to get familiar with planning ahead, so the earlier you introduce this concept to them, the better. Look for budgeting templates online and challenge your child to create one for their monthly expenses to see how they handle it. The right budget can help them pay their bills on time, save some money back from each paycheck, and learn to set limits on their spending.
3. Teach Them to Limit Large Purchases and Financing
Setting limits can be difficult for young people who are experiencing their first income, but it’s crucial to talk about how to prevent over-financing and overspending. Talk with your child about saving up for expensive purchases over time and reserving credit card balances for smaller buys that are easy to pay off in short increments. This will help them achieve the goals of learning to save money and keeping their available credit open, which will help their credit score.
4. Show Them How to Make a Practical Car Purchase
A great credit score can come in handy when it’s time to buy a car, but there are other factors to consider as well, such as how many years it will be financed, the cost of insurance, and how much the down payment will be. Discuss with your child their options and what to look for in a used car, such as mileage and safety benefits. When they’re ready to think about saving for a down payment, make sure they know the advantages of putting down more than the required percentage, including a lower monthly payment.
5. Have Them Apply for Scholarships/Grants
Another important aspect of financial wellness for young people is paying for college. If you can, you might offer to help pay for tuition or books, but it’s a good idea to have your child apply for grants and scholarships as well. Because these don’t have to be paid back, they won’t lead to debt in your child’s name, and they’re a great way to help young people learn to budget for the school year. Look online for state and city-specific grants, and make sure you and your child understand the details when it comes to applying for college loans, including payback terms, so there are no surprises after graduation.
6. Advise Them to Work While Attending School
As soon as your child is old enough for a paying job, It’s important for them to get a part-time job, as long as it doesn’t interfere with schoolwork. Getting real-life experience is one advantage, but it also teaches them the importance of a strong work ethic and budgeting for the week. After they start college, ask if their school offers work credits through partnership programs. There may even be a paid internship available in your child’s preferred field, which may lead to a full-time position after graduation. Your child might consider a second job or a temporary gig during the summer months to build up their savings.
7. Teach Them to Start Saving Early
Teaching your child the importance of saving their money at an early age will help them for years to come, from paying for college to planning for retirement. For younger kids, a piggy bank is ideal because it’s something tangible that they can see, but as they get older, consider helping them open a savings account or using a reloadable debit card for their allowance.
Money management is something that can benefit everyone, and it’s never too early or too late to learn. Talk to your kids about their goals and how they can start planning now in order to see it pay off in the future.
The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank. Nevada State Bank is a division of Zions Bancorporation, N.A. Member FDIC