Friday, November 23, 2018
Preparing Your Teen for Their Financial Future
You don’t want to know where my mind was when I was a teen. My ’88 Toyota Camry was near the top of the list and of course, sports ranked high. I knew I had to do well in school, so I could stay on the sports teams, so I guess that all worked out in my favor. One thing that wasn’t a high priority was financial literacy. I cannot remember one discussion about it during my 13 years of elementary school. Looking back, it probably would have helped me a great deal, especially during my university years. Sadly, according to a recent survey commissioned by the Northern Credit Union (NCU), 60% of all Ontario youth poll as NOT remembering having been taught one thing about personal finance during their education years. That’s troubling. Today I am going to go over a few things you can do to help your young adult navigate the financial wild. It just might save you from having to teach them when they are 30 and living in your basement.
Saving and Budgeting
Peas and carrots. Peanut butter and jelly. Bert and Ernie. These two are just meant to be with each other. Why are they mentioned first? Well, you can’t have money to do the fun things in life unless you first budget your money and then save it. Seems to me that many of today’s young people know this as 49% of them said that it was the most important financial literacy topic. Being that the name of my site is Budget Boss, I’m guessing you know how I feel about it.
There are several ways to go about budgeting with your child. A zero-based budget is one where every dollar has a purpose. For some, this may seem a little extreme. I personally think this type of budgeting is necessary for certain individuals. In my mind there are two types of people that need this sort of system:
- People who easily lose track of how much money they have spent
- Meticulous people who love that sort of structure
Where this type of system excels is that you can build right into a savings component. Build candy into it and the movie theatre too. The key is to put it all on paper, or a spreadsheet preferably, and stick to it.
Helping your child make their first budget is a skill that will propel them throughout life. The truth is, after actually making a budget and sticking to it, it became second nature for me. This will help you avoid those calls in late November asking for money in university. Well, hopefully, it will.
Money Management (Credit and Debt)
Where saving and budgeting is the foundation of your financial pyramid, money management is the first floor. Our youth seem to know how important it is as well with 44% thinking it was the most important financial literacy topic. When I think of Money Management I think of discipline. You see, having a budget and saving your money means nothing if you don’t have the discipline to carry through. Why are credit and debt lumped together with money management? They are together because debt is the result of poor money management.
My Dad once described this at the dinner table. I was 17 and was planning on going to university the next year. He told me I would probably be offered some sort of credit card once I got there. He proceeded to take one of the two pork chops I had on my plate and put it on his. “This is what happens when you run up credit card debt.” Thanks, Dad. I wish I had listened to him as sure enough I got offered a credit card right away and sure enough, I proceeded to max it out.
Ultimately how you manage your money will be the defining factor in your success in life. It is all about habits, and good ones will allow you to accomplish all you want out of life. What are some good money management habits?
- Stick to the budget you set out for yourself
- If you don’t have the money, don’t buy it
- Never impulse buy when you go shopping
- Work hard to build up savings
- Understand how interest can work for you, and against you
You see credit and debt have become a way of life. This doesn’t have to be the case for the next generation. I have heard that a line of credit or a credit card can be an emergency fund. Our youth needs to understand how wrong that is. Having credit as an emergency fund is essentially poor money management. We should use savings for emergencies and not credit. We also should understand what an emergency is. It isn’t a sale on designer shoes. They need to know that too.
Planning for the future (Investing)
I have saved the best for last. Planning for the future is the gravy on your potatoes. The icing on the cake. The cheese on your burger. All this budgeting and saving isn’t that fun. Well to me it is, but I’m special that way. For most people it does not feel as fun as spending all our money. While a fancy new Coach Bag is nice, buying a new home or car is a lot nicer. This isn’t lost on our youth as a whopping 61% stated that they wanted to learn ways to plan and invest for the future.
A sharp distinction needs to be made with interest earned and interest paid. When you pay interest, having debts like a credit card, you make other people rich. When you earn interest, saving and investing for the future, you make yourself rich. Think of my dad giving me an extra pork chop instead of taking mine away.
With young adults, a simple savings account can get them rolling. When they hit 18, a Tax-Free Savings Account is a must have. From there they can learn about financial markets and how stocks and bonds work. The most important discussion to have, however, is about goals. Having goals, it what makes life worthwhile. It’s what keeps us dedicated to our future and our budgets. If I told you skipping a night out with friends would give you a nice vacation at the end of the year, I’m pretty sure I know what you would choose. While it may not seem that simple, it really is. Make a point to teach your children how important having goals are and that their goals and money need to align. Remember that a goal without a plan is just a dream.
I think it is extremely important for the next generation to be financially fit. It will make our society better overall and anyone that doesn’t have to go through what I went through is all the better for it. The key is that they need to know that budgeting doesn’t have to be boring and money doesn’t have to be scary. That’s where financial literacy comes into play. The more we all know, the better off we will be.
Check out this cool financial literacy game for young adults. I got one wrong, I am pretty upset about it!
“Teachers are our greatest public servants; they spend their lives educating our young people and shaping our Nation for tomorrow”. – Solomon Ortiz
Email – firstname.lastname@example.org