All of us are aware money does not grow on trees; hence personal finance should be explained to kids from a very young age. Most teens have no clue where money comes from and where it goes. Various aspects of personal finance such as income, expenses, mortgage, investment and retirement accounts are never discussed with teens. Many financial problems faced later in life can be avoided if they are provided with proper personal finance solutions from their early years. Just like physical education, personal finance should also be a part of their syllabus so that they can understand the value of earning and spending money judiciously since the very beginning.
Financial experts claim that there are a few things which are considered a must when it comes to imparting personal finance knowledge to teenagers. Also if your kids aren’t aware of these things currently, then it is high time you start introducing them to such issues. Some of them are mentioned below –
* Knowing where money goes – It is essential to keep track of your expenditures on a daily basis. It doesn’t matter whether you are utilizing a software that allows you to do so or simply do in on paper and pencil. The first step towards controlling your expenditure doesn’t mean you don’t eat out or don’t go for vacations. When you are maintaining a record, it is not your parents’ money you’re saving, it is your own.
* Invest early – It is crucial to start earning early in order to be financially independent, but it is equally important to start saving or investing early. The golden rule of any investing plan is to start early, simply because time is on your side. Teens must also be taught to start investing early to reap the benefits of compounding. It is not necessary that you need to be earning to start investing. As a teenager, any excess pocket money can be saved and invested in useful avenues.
* Spend thoughtfully – Encourage your kids to save money from an early age. Let them understand the value of living on their own by their own means. It is their choice whether to live alone or with another roommate, or use your old car or buy a new one. The main goal to keep in mind is spending less than earning. Every rupee that your teenage kid spends unwisely is a loss to the investment potential.
* Stay away from debt – When your kid will be starting out on his or her own, the key point to keep in mind is to spend within limits. High expenses tend to hit hard in the beginning so most kids end up exhausting the credit card limits. When you do that, it will limit your options. Your kid may be tied up to paying back and won’t be able to get ahead with anything.
* Act your age – You don’t have to finalize the first apartment you see or if your old car is still in working condition, there is no need to buy a new one. Parents must make their teenage kids understand the values of struggling to earn income. Most parents were also struggling with their finances when they were young so just because parents can afford to buy a new car every three years doesn’t mean the kids can do that too. Kids should learn how to be comfortable with limited means too. It is not wise to buy latest tech gadgets if you are low on money.
* Take advice – All teenage kids face problems with their finances. This is because typically the expenses they incur are more than the money they earn or the pocket money they receive, as the case may be. Parents must advice their kids to connect with other like minded teenagers and understand their experiences with money. There are many teenagers who are trying to make it large with limited funds and their story or expert advice is available on blogs, facebook posts or tweets. Teens should stay in touch with other students who share the same interests so as to manage money more efficiently. In this generation where social media plays a big role, it is easy to get guidelines on every single aspect of personal finance from such avenues.
* Set goals – Dreaming big and idealistic is the key to achieving your goals. Keep a practical goal and work for it. Teenagers should be taught this aspect of personal finance from the beginning. Teens understand this concept if they are made to save for something they want - be it a bike or a tech gadget or a holiday, rather than be given with the funding immediately on asking.
The smart way to educate your teenage children regarding personal finance is by using practical examples and instances which matter to them. For example, you can teach them about liabilities by discussing about education loans, as this is an integral part of higher studies. Practical hands on approach and constant guidance are absolute musts while imparting personal finance knowledge to teenagers.