Young adulthood is equally as exciting as it is nerve wracking for parents and teenagers alike. In this crucial, transitional time of their lives, it’s important to prepare your teen for the added responsibilities and privileges that come with being an adult. At this age, your teenager will likely already have a basic comprehension of money management, but are they actively implementing it into their daily life? There are countless benefits to helping your teen gain a deeper understanding of saving, budgeting, and banking— independence, control, responsibility, and, of course, long term financial stability!
Understanding Money Management
Money management is a skill that can set the foundation for a secure financial future. For teenagers, learning how to manage money effectively can lead to greater independence and confidence. It involves understanding how to budget, save, and spend wisely.
By mastering these skills early on, young adults can avoid common financial pitfalls and build a solid financial foundation. Whether it’s saving for a big purchase, managing a bank account, or planning for future expenses, good money management habits can make a serious difference in achieving financial stability and success.
What is Financial Literacy and Why is it Important?
Financial literacy is the ability to understand and manage personal finances effectively. It includes a range of skills, including budgeting, saving, and investing. For young adults, being financially literate means making informed decisions about their money, which can lead to better financial outcomes.
Those with higher financial literacy tend to have lower debt and higher savings rates. This knowledge empowers teenagers to navigate the complexities of personal finance, avoid costly mistakes, and set themselves up for long-term financial stability. By becoming financially literate, teens can take control of their financial future and make smart choices that will benefit them throughout their lives.
Determining Needs VS. Wants
In your teenage years, it can be challenging to be constantly bombarded with the latest trends on social media and not want to buy everything that you see. Learning to distinguish the difference between needs versus your wants can be incredibly beneficial when planning a budget and setting up saving and spending habits. It may be helpful to sit down with your teenager and create a written list of what you both agree fits into their needs and wants categories. Think of needs as things that your teen might require as a necessity in their daily life. This might include clothing, gas money, and school supplies. Wants are things that are not crucial but may improve their quality of life, like electronics or a gym membership. Pair the associated costs with each need and want so your teen can have a visual of exactly how much money goes towards these items, and help them to determine what they can and cannot live without. If they have a job, have them calculate how many hours they have to work to pay for the items on their needs and wants list.
Saving and Spending
Once your teenager has a clear concept of what they need in their life, what their money may go towards, and how much money each of those things will cost, they can further their understanding of saving and spending. By determining a monthly budget, they can then delve deeper into how much money they may be able to spend on their needs vs. their wants, while also considering how much they would like to go into their savings. Check out our blog post on Budget Basics to help your teen create and stick to a budget that works for them.
Bank Accounts, Credit Cards, and More
If you haven’t already, it’s vital to set your teenager up with a savings account. A parent or guardian can be a cosigner on their account, which allows you some access and control to guide your teen throughout this process while still allowing them to explore on their own. Getting comfortable with using their bank account as a teen will further their understanding of money management, increase their financial literacy, allow them to save money and even accrue interest, and set up direct deposit if they are employed.
The next step in their financial journey may be to task your teen with the responsibility of a debit or credit card. Debit or ATM cards allow much more control over spending, such as setting spending limits and mobile alerts when an account is overdrafted, and may stop your teen from spending unlimited or unnecessary amounts of money. This is a great place to start for a younger teenager, and will help them to understand the many responsibilities associated with having such easy access to their money, and just how quickly it can be spent.
Once they are a bit older, consider entrusting your teen with a credit card so they can begin building a credit score and understanding the responsibilities associated with having to pay a credit card bill. Yes, a credit card is a big and sometimes intimidating step, but the best way to set your teenager up for success in the future is to help them start building credit now. They’ll learn how to read a credit card statement, further their understanding of minimum payments and interest rates, and build a respectful relationship with money. It is important to impress on your teen how quickly credit cards can turn from fun to sour with such easy access to seemingly unlimited spending. Late payments, overdraft fees, and increased interest rates can all negatively affect your credit score and increase your debt.
Teaching Your Teen to Manage Money Responsibly with Piscataqua Savings Bank
While you may still want some control over your teen’s finances, it’s important to allow them to explore the money management process in order to learn. Safeguards like mobile alerts and limits on spending can act as guardrails while your teen practices responsible money habits. To get your teen started on the path to financial success, visit us at 15 Pleasant Street in Portsmouth, NH or get started by opening a savings or checking account online on our website.
Get Started Today!
To get your teen started on the path to financial success, visit us at 15 Pleasant Street in Portsmouth, NH or get started by opening a savings or checking account online on our website.
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