When teens start approaching adulthood, a lot of responsibility is put on their shoulders; suddenly they’re getting their first jobs, applying for student loans, and being solicited credit cards.
Often they aren’t told what they need to know before signing up for that credit card or applying for loans. How can parents teach them the right questions to ask about finances, and ensure their needs are being met?
Roy Paul with Cents Ability, a nonprofit that teaches teens financial literacy, explains a few tactics parents can teach their kids to become a responsible spender and saver.
How to budget – Budgeting is a habit that we want teens to build. We teach the 50/30/20 rule for budgeting: 50% of your take home pay goes to essentials, 30% goes to fun purchases, and 20% goes toward savings or debt repayment. What are your needs versus your wants?
Build good credit - There are good and bad ways to use a credit card. Many young people don't know how interest compounds, and we teach them how to understand their credit score and build good credit.
It’s never too soon to start saving – The good kind of compounding interest: When you save early, even a little bit, you accumulate more wealth than if you start saving much later in life. Making saving a habit now creates long term financial success.