Money: everybody wants more, especially your teen. However, financial responsibility isn’t always easy. Teens need advice and your knowledge when they deal with money.
The first big financial decision many teens make is about their first car. Don’t let your son or daughter ruin his or her credit score and financial future by taking out rash loans with variable interest rates just to get his or her dream car. Here are some points you should share with your teens about money.
For New Drivers
When a teen gets his first car, it’s a huge life change. He suddenly has more freedom and is trusted with more responsibility. It’s important that you speak reasonably with him about your expectations. Make a financial plan for him to pick and pay for a car himself. Whether you front the bill and he pays you back, or he buys from a dealership or lot that provides a payment plan, impress upon him the seriousness of the situation, as payments must be made on time and in full.
While you’re at it, make sure he also takes this new responsibility of driving seriously. Teens account for 30 percent of the total cost of motor vehicle accidents. While 17 percent of teen fatalities in car crashes involve alcohol, and 56 percent of teens between 13-20 who died in accidents did not wear seat belts at the time of the collision. While your teen shouldn’t be afraid of driving, he should have a keen sense of the rules of the road and the laws that can protect him. Encourage your teen to look online for practice tests to help prepare for the big exam and to ensure he’s well-versed on all of the latest rules of the road. If you don’t teach them this sort of things, they may very well also run into student debt, a thing hard to get over later in their lives.
Be Open & Honest
Honesty and openness are often the best tools you can use when you teach your children about money. Let your teen know how much money you make, but also how much you pay in bills and utilities, mortgage, and living costs. This shows, rather than tells, your children why there are some things they may want, like a PlayStation 4, that you simply can’t afford. It also shows them how you’ve budgeted your money. If they need to learn how to apply for a scholarship, check out this post.
While this may seem dangerous for a teen, it’s important they learn how virtual money works, as well as cash. With a debit card, teens can’t accidentally find themselves in mountains of debt. Many debit cards do come with hefty overdraft fees if a purchase is made with insufficient funds in the bank account it’s linked to, but many banks offer contingencies for this situation if it occurs, such as a reserve line of credit as overdraft protection. This credit can then be paid off later. This is a valuable experience as it lets teens discover whether they spend more money when it is virtual rather than in cash. And let’s also face the fact that it’s our anger that’s covering up the discipline we actually try to teach.
While credit card companies won’t authorize a card to anyone under the age of 21 without a parent or guardian co-signer, credit cards are handy, helpful, and essential if you trust your teen to use them responsibly. Explain how credit works and how, with good credit, they can be eligible in the future for loans on houses, cars, and more. Sit down with your daughter and look through credit card offers, find examples of which cards have low, fixed interest rates, compared to those with variable ones. Explain what this means, and how even she can manage them if she’s responsible. What also helps is regular visits to your local library where they can learn so many things about responsible behavior, also in finances.