By 12, most kids have a fair understanding of how things like loans and interest rates work. But this doesn’t mean they are fully equipped to enter into adulthood without a few additional financial lessons. Part of adulting is figuring it out on your own – but that can lead to costly mistakes, which is why you should give your kids a head start by teaching them some simple lessons before they graduate high school.
The following tips from The ChipChop Blog can help your teen prepare for and safeguard their financial future.
Driving costs more than gas.
Getting their first car is a big event in a teen’s life — and it’s a huge investment. However, there are many other expenses associated with getting behind the wheel beyond a car payment and a full tank of gas. The biggest is insurance, especially for teens, who typically cost more to insure than those of us in the 30-69 age range. Even where you live and your teen’s gender can affect rates. Boys tend to have higher premiums, but all teens are high-risk drivers and have a likelihood of crashing three times higher than adults.
Debit cards and credit cards work differently.
The difference between debit cards and credit cards is not apparent at the cash register. They look exactly the same and often have the same logos. Because of this, it can often confuse a young spender. So, before sending them out into the world on their own, make sure they know the difference. Credit Card Insider illustrates the differences between the two, citing that a debit card takes money that you already have, whereas a credit card is essentially a portable loan.
Going to college is important.
Not all children want to go to college, but it’s important for them to understand that most college graduates make more money than those who don’t. Of course, it’s difficult to stress this fact without a degree of your own. Regardless of what parents may think, teens pay very close attention to what their parents do and how they do it, so leading by example is often a good way to get your child to understand the importance of a college education.
For example, if you’ve had your eye on a doctorate but never had the time or opportunity to follow through with it, check out online universities, which offer the convenience of learning from home. Some universities provide students with around seven to eight different chances to begin doctorate programs each year, letting you tailor everything to your family and job. Who knows? Your decision to go back to school could spur your teen to start considering colleges today.
A little research goes a long way.
Your kids are still many years out from buying their own first house, but now’s a great time to stress that research and preparation is the best way to save money on large purchases. Make sure the kids understand interest rates, and how even a 1 percent difference when making a large purchase may wind up costing them thousands of extra dollars. This is a great time to introduce them to the concept of a credit score, which is a major influencer of interest rates.
Every dollar has the potential to grow.
It is never too early to open a bank account or investment portfolio. Many banks even have financial products geared directly toward elementary and middle school children. College campus accounts are also popular. Investing is another area where interest makes a difference. Except, in this case, it is making money instead of costing money. Dave Ramsey asserts that a 19-year-old that invests just $2,000 every year for less than a decade can become a millionaire by their 58th birthday and hit that number twice over by retirement. He notes, however, that this is best achieved by finding an account that offers compounded interest.
Use cash when you can; save up when you can’t
Credit has its place, and everyone can benefit from having a tidy credit report. However, it’s almost always best to pay for the things you want with the money you have versus using your credit card and paying it off down the road. The first and most obvious benefit is that you are not paying interest on small purchases. Further, not going into debt is a lot less stressful than watching “balance due” invoices pile up in the mailbox.
That being said, there’s nothing wrong with saving up for something you really want – whether that’s a trip with friends, a better smartphone, or some outdoor fun with a go-kart. In that case, though, carefully research prices and plan out how much you’re going to save month by month. That’ll take out the guesswork.
Ultimately, the best way to teach your children how to handle finances is to model responsible spending habits yourself. This is accomplished in part by the things we do every day, such as going to work and paying bills. But you can also display good behaviors by making responsible decisions, such as cooking at home instead of eating out every night. Remember, your children will mimic your behaviors, and words are only words if you don’t heed them yourself. Welcome to my own E-world, The ChipChop Blog! If you have a question or you’d like to collaborate, feel free to get in touch!