Money - Teach your teen to manage it wisely
The best way for parents to instill good financial habits in teens is to lead by example. By living within your means, spending conservatively and focusing on the long term building of wealth, you are providing good lessons for your teen.
At the present time, only three states in the nation require students to learn basic financial management as a high school graduation requirement and 17 require financial management to be incorporated into other subject matter. Therefore the burden of this important life lesson falls on parents.
The most important topics to discuss with your teens include:
- Budgeting basics. Teach them to budget regularly by knowing how much money comes in and how much goes out. Most teens have an income or receive allowance and have expenses like gas for a vehicle.
- Living within your means. Peer pressure persuades many of us to fit into a group like wearing trendy clothing or having the latest designer cell phone. Problems happen when people cave in to the pressure and do not prioritize their needs and wants. Help your teen understand needs are things that are required to live and wants are things we desire that are not necessary.
- Banking. Educate your teen on banking basics such as the differences between checking and saving accounts, writing a check, using the ATM, writing a deposit or withdrawal slip, keeping track of the balance and reconciling a bank statement.
- Paycheck information and deductions. Discuss the difference between gross income which is what you earn before deductions and net pay which is what you take home after deductions. Also discuss deductions such as Social Security, Medicare, Federal Income Tax and possible insurance premiums.
- Federal Income Tax. As an employee, help your teen understand the purpose of the W-4 form on which they indicate the number of withholding allowances they will claim. This will determine the amount of federal income tax withheld from their pay and will be reported by January 31 every year. Some states also require income tax and will provide guidelines on calculating deductions.
- Pay Yourself First Encourage your teen to take at least 10 to 15 percent or more of their income and place it in a savings or investment account. Early saving habits help teens learn to achieve financial goals, be prepared for life’s unexpected moments, cover college expenses and even plan for their retirement.
If money management has always eluded you, it is critical that you work to improve your financial weaknesses. One way to improve your financial habits is to take personal money management courses such as the Investing in Yourself series.Money management courses will help you learn positive habits and, even better, demonstrate good financial practices to your young adult.
Published Jun 22, 2009.