For most teens, financial education is not part of their high school curriculum, and parents don’t always know where to turn or know who to ask. We live in a world where getting what we want is just a matter of a few taps on our hand-held devices and we’ve become accustomed to immediate gratification. So how do we ensure our kids learn the value of saving money, building strong credit, and the dangers of overspending?

Create a Budget (And Stick to It)

The first lesson in money management at any age, is to create a budget and live by it. Knowing your expenses vs. your income is the first step to financial independence. It’s important to subtract regular expenses from income, to know what you’re left with at the end of the month. If expenses surpass income, decide what expenses can be cut going forward. There are helpful budgeting apps your kids can use to help track spending, like Mint. Teaching your child how to monitor their spending and to regularly review their bank account is the foundation of financial management and sets them up for long-term financial success.

Start Saving Early

The fourth wealthiest person in the world, Warren Buffet once said, “do not save what is left after spending, but spend what is left after saving.” Whether saving for larger purchases or saving from retirement, there is no time like the present and starting early literally pays off. It’s true your child may not have a lot of extra income at first but saving even small amounts each month will add up and set them up to be better prepared in the future. 

A good place to start is to create an emergency fund. Having money set aside for the unexpected allows them to be prepared for car trouble, and other surprise bills, without going into debt. This should be the first step in savings, before any large unnecessary purchases.

Saving for retirement should begin as early as possible. If a child is under the age of 18 (19 in some states), a parent can assist in setting up a custodial IRA to begin saving for retirement. As far off as retirement may seem, there is value in starting early. A Roth IRA allows you to save money that has already been taxed, so the gains later in life are tax-free. Roth IRAs also allow for withdrawals before retirement for certain purchases like some college expenses, or a down payment on a home. Think of it like a back-up emergency account. (Some exclusions apply.) Read more about different types of investments on our website, or contact Marc Hanneman.

Build Credit

Having no credit history can be almost as problematic as having bad credit. Having and responsibly using a credit card is like building trust with creditors. Usually, young adults can apply for a Student or Secured Credit Card to build their credit history. By using credit and making timely payments, you’re laying the foundation to be approved in the future, and for more significant borrowing, such as a car loan or mortgage. A great place to start is a Credit Card through Andover Bank.

Another important aspect of building credit is checking credit history. It’s a good idea at all ages to check credit history at least once a year - and it’s free to do so! Identity theft is a common fraud issue and sometimes it can happen without any warning, especially to children and young adults who don’t have an active credit history. It’s easy to review your credit online in just a few moments, read how on FTC.gov.

Building credit should be a slow and steady race. Teach your child not to overextend themselves by maxing out credit cards. They should know their limit and make payments on time. Also important to note, closing an account prematurely can affect credit negatively. Being consistent over time is the best way to build a positive credit history.

Teaching your teen or young adult the basics of money management is an investment in their financial future. With a little knowledge and some simple budgeting tools, you’re setting your child up for success and financial freedom in the future. Good values start early but often solidify by late teen years, and there’s no exception when it comes to money. Start early with good money habits and you’ll be setting up your child for financial success.