How to get teens prepared for life on their own
Regardless of how much time remains before your teen is making most of their own decisions, it’s important to teach them about life on their own – especially in the area of finances. Some high schools do a fairly good job of teaching the basics of finances but some teach hardly any at all. And even if they did learn some basics, it’s not necessarily everything they need to know and it likely lacked much practical application.
To help you think through the types of things they need to know, I’ve compiled a list of seven action items you should teach to get teens prepared for life on their own:
(1) Maintaining an expenses bank account, including understanding fees and knowing your accurate balance.
Most young people don’t carry cash anymore. Everything is some kind of card. Although that can be very convenient, it can also be dangerous. It can be too easy to swipe a card and not keep careful track of your balance. Teach them how to use either a handwritten check register or online banking apps, whichever way fits their personality and is what they will keep up with regularly. Help them pick the right type of bank account for regular expenses and know how it works.
(2) Growing a savings account for emergencies.
Whether they choose a regular bank savings account or something more complicated such as a money market account, they should know how to regularly add to it and manage their finances so their balance is growing every month. They will thank you on the day they have an unplanned expense and the money is standing by to take care of it.
(3) Paying bills fully and on time.
In the modern day of automatic payments and online banking, paying bills is easier than ever. No need to write checks out and make sure they get in the mail. But you do still need to make sure the bills are paid on time and your bank balance is adequate. Teach them to plan ahead by using a budget and knowing when every expense is due each month. Even if you’re still paying their bills or most things are covered in their room and board, they should be involved in understanding how to take care of monthly bills so it’s already a good habit for later in life.
(4) Choosing and carrying insurance.
Even if their student status has you still covering them with your insurance, it’s important they know how insurance works, what types they will need, and how to choose a plan. Because this is one of the most confusing financial choices due to all the various types, plans, companies, and price points, they need you to sit down with them and go over what you have and why. That way, when the time comes to buy their own insurance, they are educated on how to make smart choices and don’t simply go with the company boasting the strongest social media presence.
(5) Taking the right student loans.
Understanding all the options and repayment requirements, rates, terms, conditions and more for student loans can be overwhelming. But with the cost of higher education increasing every year, getting the right loan is critical. That’s why I recommend Credible.com. They help simplify the process, answer all your questions in jargon-free speak, and get you options to choose the perfect fit your student’s needs.
(6) Paying taxes.
Maybe you recall getting your first paycheck and that shock of how much taxes cut into your bottom line. Prepare your teen for this reality and teach them how to stretch what they net. Young people who don’t understand taxes can mistakenly plan their finances based purely on their hourly rate multiplied by the number of hours they worked, not realizing that isn’t what they’ll receive. Not budgeting accordingly can result in debt accumulation that can quickly compound.
(7) Handling credit cards and offers.
Thousands of young people open their very first credit card while in college. Even though many credit card companies are no longer sending reps to college campuses, the solicitation letters start pouring in once you turn 18. Teach your teen to ignore those offers. Prepare them to resist the allure of it seeming so “adult” and “independent” and “responsible”. Credit card debt, especially coupled with student loans, can cripple finances for more than a decade after college. Teach them to ignore credit card offers and stick to spending only what they make. If they need to begin establishing credit, look into secured credit cards. These often have a very low credit limit (usually around $500) and are self-funded. They work just like a regular card and build a credit score but they do not carry the risk of normal cards.
More good tips for your teen: 7 Tips to getting your teen ready for college.