Teenagers are on the cusp of becoming income earners. Whether they have started a new job or are soon to be of working age, it’s important to have a conversation with them about money. Setting young adults up with the knowledge they need to be financially smart is important for their self-sufficiency.
One of the most important money conversations to have with your teens is how to create financial goals. While young, they won’t have similar goals to adults, such as saving for a house or a car. However, the conversation can start so that when they’re equipped they’re finally ready for adult milestones. Teens need to understand the difference between short-term and long-term financial goals and what is needed to prepare for both.
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Short-term goals include small purchases that teenagers need to save for in a short time. This can be concert tickets, a cell phone, or beauty products. Teach them to look at their income and how much they can put away to eventually afford the item. They should also know when to start saving for what they want. Creating a short-term savings plan with a mobile app can help them keep track of their savings better.
Long-term saving goals are those that take over a year to accomplish. This can include a car, collector’s items, a holiday, or paying for a big-budget item. For this, teens can learn how to use different methods for saving. The most common ones are;
- 50/30/20: 50% is spent on needs, 30% on wants and 20% goes to savings
- Pay yourself first: After paying for necessities, a percentage is calculated for how much is needed to be saved then treat the savings like a necessary expense.
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Teenagers need to learn about budgeting. It’s one of the most important skills that can help them have a healthy adulthood. This helps them remain disciplined and have money left over for leisure and savings. In addition, budgeting makes it easier to achieve financial goals and helps teens apply similar principles where they don’t succumb to excesses and consumerism. Finances 101: How To Create A Budget And Different Budgeting Methods You Can Use
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Teens often go out into the world not having a full understanding of how to manage money. Whether it’s pocket money or earned income, many young adults spend all their starting out money on a good time because they don’t have any major expenses. If they’re in college, they don’t have to worry about rent because their school fee covers tuition, hostel rent, and food as well. Unless they were self-sufficient long before, they’ll be unaware of what pitfalls to avoid. We Live In A World That Encourages Excessive Spending & Discourages Savings We Need To Get Out Of That Mindset
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Teens need to avoid going over budget. If they need to buy an item that’s outside of their allotted money, they should save for it. They should also avoid borrowing from lending apps that offer unsecured loans and borrowing money from friends endlessly. They can risk ending up in a cycle of debt that can be difficult to get out of. Opening a savings account for your teen that they can use for their financial goals helps them stay away from unmanageable debt. Finances: Should I Clear My HELB Loan First Or Should I Save?
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If they’re setting up a savings account for themselves, they need to choose one that doesn’t accumulate too many fees and has a friendly exchange rate. A current account can be a better option if they only want an account where they keep their money safely. Teens need to understand the roles of each bank account and why they could work for them.
Another mistake teenagers need to learn to avoid is having no emergency fund. As part of their savings, teens should learn to set aside money in the event of anything. This includes a medical emergency, being stranded far from home, a car breakdown, a phone dropping in water, or a laptop crashing, etc.
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Another common problem young people face when managing their finances is succumbing to peer pressure. Comparison culture is especially rampant among teens who spend a lot of time on social media. When they finally join college or the workforce, they’re likely to meet diverse people, including very successful individuals, or those from wealthy families. In addition, they’ll encounter peers who live on the edge where they spend their rent money on partying.
The ultimate financial goal of teenagers is to achieve financial freedom but giving in to peer pressure can affect this. When your teen buys the latest cell phone because they saw a friend with one, or when they go out and use overdrawn accounts, they end up jeopardising their future. Teens are more likely to offer to pay for things because they want to appear like they’re well off when they don’t have the money for it. They also will participate in activities they can’t afford because of the fear of missing out. 4 Tips To Ensure That FOMO Does Not Rule Your Life
Teens need to learn to say no when they can’t afford to go out. They also need to learn how to budget or save for outings so that they can have a cushion to enjoy themselves without worrying about money. Having core values that help them determine how to navigate their relationships will help them have a safe foot forward when it comes to their finances. When they don’t put too much stock in appearances, they will be okay with not being able to afford items. 5 Ways To Deal With Your Friends When It Comes To Money
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Teens need to understand that sometimes they need to eat at home rather than go out for fast food. They also need to find more affordable ways to have fun if they don’t have enough money to attend extravagant outings. This won’t ruin their early adult experience, but with a better relationship with money, they will eventually be able to enjoy their dream vacations with enough money in their accounts. There’s Food At Home As A Savings Plan – How To Apply This Mantra To Other Aspects Of Your Life.
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Teens may think they’re too young to start investing but it’s never too early to create a nest egg. You can set up a custodial account for your teen. This is an account created by an adult for the benefit of a minor. This helps young people learn about investments and growing wealth from a young age. They are also able to gain agencies about assets acquired and they create healthy habits towards money from a young age.
Teens are also likely going to get cash gifts as they achieve various milestones like turning 18, graduating, or moving to their first apartment. Instead of spending these gifts on random items that can be consumed fast, they can invest this money and set on the journey to wealth generation.
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Teach your teens about how every income above a certain amount will be taxed. They’ll also need to file tax returns each year once they acquire a tax PIN or ID. Walk them through taxing interfaces to show them what they need to understand. Teach them the importance of filing taxes on time and how to seek assistance should they feel stuck. Show them how taxes work differently for self-employed people compared to contracted employees. Try not to overwhelm them with all the requirements they will encounter as they grow older.
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Financial literacy is an important part of becoming a functional adult. Knowing how to manage money also helps reduce the anxieties that surround money. Starting on a poor trajectory can lead to plenty of financial problems in adulthood. Parents, guardians, and teachers can help teenagers avoid these problems and have a healthy relationship with money once they become adults. Remember to use real-life examples when teaching your teens about money. Research shows that they respond better to real and relevant instances.
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