Lessons for Healthy Financial Habits
Article Courtesy of Nancy Harris, CMFC, CDFA
President, LPL Financial Planner, New Foundation Wealth Group
As families gather for the holidays, you may find opportunities to discuss healthy financial habits with children and teens.*
Teens are becoming more independent but still need plenty of advice. With more money to spend and more opportunities to spend it, teens can easily get into financial trouble. Let’s teach them a few financial lessons. With our help, teens will soon develop the self-confidence and skills they need to successfully manage money in the real world.
Lesson 1: Handling Earnings from a Job
Encourage your teen to get a part-time job that will enable them to earn money for expenses. Here are some things you might want to discuss before they begin working:
• Agree on what the pay should be used for.
• Talk about taxes.
• Introduce the concept of paying yourself first: Deposit a portion of every paycheck in a savings account before spending any of it.
Lesson 2: Developing a Budget Developing a written spending plan or budget can build accountability. Here are some ways you can teach budgeting:
• Consider giving out a monthly, rather than weekly, allowance.
• Encourage thoughtful spending decisions and waiting at least 24 hours before making purchases.
• Suggest ways they can earn more money or cut back on expenses to resolve a budget shortfall.
• Teach how to modify a budget by categorizing expenses as needs and wants.
• Resist the temptation to bail your teen out.
Lesson 3: Saving for the Future Teens are ready to focus on saving for large goals such as a new computer or a car and longer-term goals such as college. Here are some ways you can encourage them to save for the future: • Write down savings goals to make them more concrete.
• Set goals that are based on values, not on FOMO (fear of missing out).
• Offer to match savings for a long-term goal.
• Offer praise when they reach financial goals.
• Introduce the basics of investing by opening an investment account for them. Work with a financial professional who wants to teach good investment habits.
Lesson 4: Using Credit Wisely Don’t ignore the credit card issue, as many teens today use credit cards. You can take some comfort in the fact that credit card companies require an adult to cosign a credit card agreement before they will issue a card to someone under the age of 21. And you can ask the credit card company to assign a low credit limit (e.g., $300). Here are some things to discuss with teens:
• Set limits on what the card can be used for (e.g., emergencies, clothing).
• Review the credit card agreement to understand how much interest will accrue on the unpaid balance, what grace period applies and what fees will be charged.
• Agree on how the bill will be paid.
• Demonstrate how long it will take to pay off a credit card balance if he or she only makes minimum payments by using an online calculator or by reviewing the estimate provided on each month's credit card statement.
* Contact us for tips on teaching finance to children or see Gig Harbor Living Local July/August edition.
Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.
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