Page 25 - BusinessWest March 20, 2023

• Let your teen earn money. They don’t need to get an actual job, although I would recommend this at some point. Your teen can work around the house, cut the grass, do odd jobs, etc. The idea is to get them used to managing their own money. Once they are regularly earning, you can teach them to set aside money for short-term saving (maybe to purchase a big item), long-term saving (maybe for col- lege), and spending now. If they are receiving a paycheck, it is a great opportunity to discuss taxes and Social Security and Medicare withholdings.
• Open a bank account. It’s a great idea to have a child manage their own sav- ings account. Many little ones start with a piggy bank for odd change. When the birthday or allowance money starts to accumulate, it is time for a bank account. Make sure to have access so that you can monitor the account. When the teen gets their first job, they can have their paycheck deposited in a checking account.
• Get a debit card. When your teen gets a checking account, it is the perfect time to get a debit card. They can practice using it and seeing purchases impact the account balance. Your child can get an online login to their bank account and learn to watch the activity.
• Help them set a budget. Teens are notoriously frivolous. Starbucks, dining out, shopping, video games — there are so many more ways for our teens to spend their money than we had as young adults. Discuss with your teens how many hours they would need to work to buy a grande Frappuccino at Starbucks. Talk about how long they would need to save to go to a big concert. If it is easier to illus- trate, find an app for budgeting. There are many available.
• Consider credit cards. This is a tricky one. Each of my children was given an additional card on our account when they were 16. This card came with explicit instructions (from mom and dad) on how and when it was to be used, as my hus- band and I were ultimately responsible for the bill. Our kids understood that the card could easily be taken away if misused. This was a gentle introduction to credit
“In general, we should take the stigma out of money discussions and make spending and saving discussions easier to have.”
and allowed them to establish a credit score (see the next tip). You could also start with a pre-paid credit card on which you put a certain amount. When each of our children were juniors in college, we helped them apply for their own credit cards. By this time, their money skills were good, and they understood the importance of paying the bill monthly.
• Explain credit score. Many teens and young adults do not understand the need to build credit. Emphasize that, by using credit responsibly, your teen will build credit and increase their credit score, which is imperative when it is time to finance a car or a house. Explain how people with the best scores are given the lowest interest rates when looking to make large purchases.
• Discuss compound interest. This topic can apply to both credit cards and investments. Explain to your teen how compound interest (paying interest on the interest from last month’s bill) can make a large credit card balance even big- ger over time. Consequently, compound interest is your friend when dealing with investment accounts. Earning interest on the interest generated year over year is how many people grow their investments.
• Discuss paying for college. Another hot topic that too many parents avoid is who is going to pay for college and how. Teens need to be included in the discus- sion about college tuition and debt from an early age. If expectations are set about how much college costs and how much you can contribute, disappointment with a college choice can be managed. Also, one of the absolute worst financial mistakes a parent can let their teen make is to choose a college without regard to the finan- cial burden on both the parents and the student. Letting an 18-year-old be unknow- ingly responsible for college debt can set them up for a lifetime of money troubles.
If your teen is really interested, find online classes that teach financial literacy. Also, look for books in your library. Particularly savvy teens can open investment accounts easily online and start investing with a minimum deposit. There are many ways to educate our children, and we need to take the responsibility for their finan- cial education. BW
Barbara Trombley, MBA, CPA is a principal with Wilbraham-based Tromblay Associates; (413) 596-6992. Securities offered through LPL Financial. Member FINRA/SIPC. Advisory services offered through Trombley Associates, a registered investment advisor and separate entity from LPL Financial. This material was created for educational and informational purposes only and is not intended as ERISA tax, legal, or investment advice.
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