Money is one of the most important, yet misunderstood things in the world. According to one study, only 3% of teens stated that they learned what they know about money from school. This ultimately means that it will be your responsibility to teach them about finance. Now is the perfect time to do so, as they’re starting with a blank slate.
Building a solid foundation now will allow them to get a kick start on life and start preparing for their financial future. Here are a few tips to teach your teen about the value of money.
Encourage Them to be Productive
The first thing you have to do is teach them that money comes from effort. You have to find a way for them to actually earn their money. You could either encourage them to get a job or pay them to do work around the house. You could also pay them to run errands. If they refuse to do so, then you can start withdrawing privileges.
If they want luxury from now on, let them know they’ll have to pay. If you were spending on electronics or fancy clothes before now, make them pay all or at least a part of it. They’ll now understand that they have to work if they want to get nice things in life.
Teach them About Credit Early
You should also teach them about the value of credit and how to build it. Teach them how building credit now could allow them to access things like a mortgage later or even basic amenities. You also have to make sure that you understand credit yourself and set a good example.
One of the things that you could do is put a small account under their name, like their phone bill. Teach them how to set up automatic payments. While you’re at it, teach them how to automatically deposit part of their paycheck to their savings account. These are the little things that will become part of their habits.
If you feel like you need to learn more about finance credit, you can get more information on finance credit at New Horizons. They have a nice page on everything from planning for pregnancy to how to teach your child how to manage money. There’s also a section on tax benefits and programs parents can join, as well as a section for single parents. New Horizons is a credit broker offering no fees and a 15-minute payout.
Work on Big Projects
If you want to teach your children the importance of saving, push them to save for a big project. Tell them that you’ll put up 30% for any car they’d like under a certain budget. Set a clear plan and time frame. If they want it hard enough, they make it happen. This alone could motivate them to become better savers.
Teach them About the Power of Compound Interest
You also have to teach them the power of small savings. And one of the ways to do that is to teach them about compound interest. Make sure that you have a clear roadmap for them so they can envision their progress. They will soon learn how much they can get back even from the smallest savings.
Telling them about compound interest is one thing but showing them how saving £2000 per year with a £500 starting capital at a 5% annual interest rate could make them £70,767 after 20 years is another. This is why you need to make it real for them.
If you want to teach them exactly how much they could save, you can use a compound interest tool like this one, and let them play with different amounts. This is one of the most powerful pieces of financial knowledge you could give to a teen and could change their whole perspective on money.
Encourage them to Start a Side Business
Another thing you could do is introduce them to business ideas they could start right now. Maybe it would be to sell their website or graphic design services. Or start a part-time landscaping business. Let them know that you’ll invest in their future too. Ask them if they’d like to take a course on any subject and offer to pay for it. They will understand the value of gaining skills and how skills can translate into additional streams of income.
Another thing you could do is partner with them. You could make them part-owner of the business. They will feel invested in it, and they’ll start learning the ins and outs of managing one.
So, if you want your teen to learn about the true value of money, make sure that you follow these simple tips. After a while, you can expect them to change the way they approach money and start making some smarter decisions.