Four Steps to Teach Kids How to Manage Their Finances
By Space Coast Daily // October 17, 2019
Schools across the country are pushing for students to be required to take personal finance classes. Parents can and should take the opportunity to start teaching their kids how to manage their finances before they get into high school.
The steps parents can take include:
1. Start with Apps to Keep Teens Engaged
There are 2.7 billion smartphones in use, with the average teen spending six hours per day on their phone. Using this data, it’s easy to see that parents can use apps to help kids learn how to manage their finances.
“Modern personal finance apps can take care of all our financial dealings with a single click,” says Scott Langdon from Money Task Force.
Teens can learn how to manage their finances and start budgeting right on their phones. But it’s also important to learn other facts about finance to be able to have control of finances from a young age.
2. Discuss Debt and How Interest Works
Debt is a major concern. Many students will end up with $40,000 in debt when they graduate college. Teaching teens about debt is important. Credit card usage and interest is equally important.
You should be teaching them about:
- Interest and how minimum payments are designed to keep you in debt for years.
- Late fees, and why it’s important to always pay bills on time.
- How credit should only be used for emergency purposes.
3. Basic Budgeting
Budgeting is the one area of finance where most people tend to go wrong. If you don’t know how to properly budget, there’s a risk that you’ll overspend. Budgeting should include helping your kids understand how to:
- Predict their income each month
- Allocate money for expenses
You don’t need to go too in-depth with your kids and explain the 50/20/30 rule, but you should explain that it’s important to put enough money away for:
- Living expenses, utilities, food
- Discretionary spending
Even a basic budget will help a person better understand how their money should be used each month.
4. Expenses Tracking
Apps can help with expense tracking, but it’s also important to have these expenses visually presented. A person can choose to use a spreadsheet or journal, or they can add in their expenses manually to better visualize their spending.
When expenses are tracked, it’s also a good idea to explain how to readjust your budget to ensure that expenditures don’t exceed income.
Of course, there’s a lot more that can be taught to teens, such as removing unnecessary spending and how mortgages and car loans work.
Starting with the four simple steps above, you will provide a basic foundation of proper personal finance management.