Instilling good money habits is important at any age, but especially during the teenage years. When the responsibilities of adulthood are looming ahead, it is imperative for teens to feel confident that the steps they are taking now will help propel them into their future.
To maintain these habits, especially long-term, teens should first understand and become comfortable with key financial topics that they may come across. Doing so will allow them to build from that information and make informed decisions with their money in the future.
There are several finance-related topics you can bring up with your teen, but if you try to make them an expert in each one, they will probably lose interest. That said, there are some fundamental lessons you can teach your teen. Below we have listed ten topics to help kickstart the conversation.
1. The Importance of Tracking Expenses
Tracking what you spend is an important step in maintaining good money habits because it keeps you “in the loop” of what’s going in and out of your bank account 24/7.
Teens, who may not have many expenses, can still benefit from practicing this habit, and one way is through opening a chequing account. Whether they are already earning an income or a regular allowance, any money coming in (and out) can be tracked through their account, which puts them in the habit of tracking where they spend, how much they spend, and if they have enough to spend.
Using a debit card linked to their chequing account can also help with this because it reduces the use of physical cash (which may be harder to keep track of). Since teens use their phones for so many aspects of their life (entertainment, socialization, school, etc.), they can now include banking into the mix thanks to apps, such as the Moya Mobile app, which helps them keep track of what’s going on.
2. The Value of Using Credit Cards Wisely
Teens can learn a lot from using a credit card, such as how interest rates work, the importance of maintaining a certain balance that levels out with what they are earning, and the value of saving money and spending wisely.
To get a hands-on approach to using a credit card, you may be able to add your teen as an authorized user on your account, which means the card will still be in your name (Canada requires you to be the legal age of majority to own a credit card). This way you can always keep track of their spending habits and ensure nothing gets too out of hand while still allowing them to go through the process of purchasing an item and needing to pay it off – a task all too familiar in adulthood.
Understanding the mechanics of using a credit card can help teens feel more confident when it comes time to use them as adults. Especially since credit cards can help build a good credit history, it’s important to teach teens the responsibility that they need to use one. Topics to bring up can include the importance of paying off the entire balance each month to avoid interest, how to review a monthly statement, etc.
Managing debt is a reality for many people and it can often result from using credit cards, which is why teaching teens about the outcomes (both good and bad) that can result from using one is an important lesson to start as soon as possible.
3. What a Credit Score Is
Credit scores start building sooner than you think. Teaching your teen what a credit score is and how it will affect several aspects of their life, such as renting an apartment, buying a house, or purchasing a car is an important way to ensure they can take the steps to help build it as soon as they can.
Creating an open dialogue about your own credit score, the ways you can check it, and what the difference is between a “good” and “bad” score are great conversations to have with your teen.
4. The Beauty of Budgeting
Even if your teen doesn’t have many expenses, getting them in the habit of budgeting will help them approach the money that they do have coming in with care.
The act of splitting up their money into different categories, such as saving and spending, can let them visualize it, and help them understand why it’s important to do, especially when they have a financial goal in mind.
Budgeting early also can allow teens to find a strategy that works best for them. Of course, this can (and probably will) be modified as they grow up and their expenses change but finding a particular budgeting strategy, such as setting aside a certain percentage for savings, creating a food budget, or even a “going out with friends” budget, all can help your teen build consistent habits.
5. The Importance of Saving
A major part of budgeting is saving, and teaching teens about the value of doing so will have their future self feeling extremely grateful that they did. Opening a savings account can be a great way to start the process. The act of putting money in and watching the sum grow can be exciting for teens, especially if they have a goal behind it.
6. The Difference Between Needs vs. Wants
This is something even adults can struggle with, so having a teen try to master this is highly unlikely. However, that doesn’t mean it is not an important topic to bring up, as the earlier your child can understand the difference, the easier it will be as they grow up.
Many teens may often get their wants and needs intertwined, especially when their peers can play a major role in their decision-making. Although your teen may make it seem like they need an expensive item, it’s important to have an honest conversation with them so that they can see the items they already have don’t always need an expensive upgrade.
That’s where budgeting and saving come in, as teens can understand that if they want something, they can save for it. This clear distinction between what they need and what they want can help them to determine the things they should spend their money on.
7. What Aspects of Their Paycheque Means
There are many aspects to a paycheque that can be confusing to those who receive one for the first time. Teaching your teen what the difference is between their net vs. gross income can prevent some confused looks later on. Although this may seem like a trivial task, understanding what amount will go into their bank account can help with tracking, budgeting, and saving.
By doing this, you are also opening the conversation to pensions, taxes, and other key areas that come along with earning an income.
8. The Value of Compound Interest
Although teens don’t necessarily have to understand all of the technicalities of compound interest, it is a good topic to introduce them to because it demonstrates the value of saving money and the benefits it can bring.
When a sum of money is deposited into an account, it will generate interest in the first year based on what your annual interest rate is. In the second year, that’s where the compound interest comes in, as the balance will increase again because the annual interest rate is added a second time, and this occurs every year. Essentially, it is adding interest on top of interest, which can be very valuable to acquire and is something teens can consider because it is a long-term investment.
9. Setting Financial Goals
Setting financial goals allows teens to work toward something, whether it be something in the near or distant future. Often, teens may not see the value in saving for when they are adults because it seems so far away. This is why talking to teens about what is important to them and what they are most looking forward to as an adult (such as buying a house, a car, further education, etc.) can help prevent the act of saving money feel like a chore.
Setting a goal also adds a timeline to the mix, which can help teens understand how much they need to save to achieve a goal of theirs by a certain time. Making goals attainable and measurable allows teens to focus on the end-product, which is sometimes the motivation that is needed to start their financial journey.
10. The Importance of Financial Literacy
It’s important to emphasize that the financial world doesn’t have to be a scary place full of unknowns. Even talking with your teen about money should show them that you have trust in them to start this process toward their future.
Financial literacy is the ability to thoroughly understand and successfully use financial skills (such as budgeting, money management, etc.) in one’s own life, which allows the opportunity to make quality decisions based on their knowledge. Being financially literate is an invaluable trait that can lead to countless long-term benefits. Understanding financial topics at a young age allows for financial literacy to grow.
If you and your teen are ready to jump in and get started, we at Moya Financial are here to help. Contact one of our Financial Services Representatives today.
