Teaching teens about finances and handling money can often feel like an uphill battle. Along with their natural attitude of thinking they know just about everything, they also come with an ability to not care about anything unless they want to. Their impulses for laziness and frivolous spending can be hard habits to break. Still, the effort is worth the time investment and will pay off.
Money Matters and Other Timely Advice
Helping your teens understand why money matters and why it's essential to learn money handling basics when they're young can feel like a trial in patience and other virtues. There are, however, some great tips to help you talk to your teen about money, investing, credit, and other finance-related topics.
The first is to start where money matters most, with their cash. Nothing gets a teen's attention quicker than mentioning money. Whether you're giving it to them or taking it away doesn't matter at the start. The fact that you're offering or threatening will do the trick. But what happens after you've gotten them to listen up?
Learning the Ropes
Teaching children anything starts with what you're doing as a parent. If you're not handling your own money well, don't expect your children to do better. As a parent, you have to lead by example. So, if you've never invested in the stock market, do some research and be transparent.
Your child(ren) already knows more about your financial situation than you may realize, and if you start trying to teach them something you don't know anything about, you'll lose them on the matter quickly.
So, do some investing and learn what works and what doesn't. These measures will give you real-world scenarios and make what you're saying more relatable to your child. If they can see that you've figured some things out and, more importantly, take the same risk, they'll be more inclined to do the same.
Put Your Money Where Your Mouth Is
Sometimes your ability to pitch in where money is concerned can go a long way in helping your child feel motivated to get involved. For instance, if you tell your child that you'll pay them $100 to learn how to start investing in quality stocks, it will pave the way for them to listen.
Helping your teens learn about money, budgeting, and investing is vital to ensuring stable finances as adults. Here are some ways to get them interested in knowing where their money comes from and where it goes.
- Allowance – Paying your child for chores they do around the house is a great way to get younger teens to start thinking about money.
- Summer Job – These non-school months are great opportunities for children to earn decent (investable) money. Mowing yards, babysitting, and even shadowing with a company in a career or field they may be interested in can be excellent for building both work ethic and a teen's cash stash.
- Part-time Job – For teens that can work (usually through a work permit), getting a part-time job is a fantastic way to help your teen begin earning an income and learning how to budget and invest effectively.
- Full-time Job – If your teen is of legal age and furloughing college for a year or looking at a trade school, getting a full-time job is an excellent way to help them build up their finances while learning a trade or waiting on school.
Make Investing Part of Your Budgeting Plan
A certified financial planner with Wealth Tender and founder of Sparks Financials, Danielle Miura, had this to say about teaching teens about investing. “One of the easiest ways for high school students to gain financial education is TikTok.” However, she does caution, “It is key to find a well-educated TikTok influencer. Some of the most well-known and recognized designations within the financial industry are CFP®, CFA, or CPA.”
The popular video platform is excellent for showing easy-to-grasp concepts that teens can digest in small bites instead of introducing more significant precepts, especially if your teen is new to financial education.
It can quickly become overwhelming if you're new to investing, especially when teaching your teen the ins and outs. One product, Jane Mepham, founder and principal advisor for Elgon Financial Advisors LLC., swears by is the Roth IRA.
One of the reasons the Roth IRA is so great is that your teen can have their account once they turn 18. As minors, they'd need a parent to own the account until they reach legal age. However, this is a great way to get your teens thinking about investing in their future. If they can manage to not touch the money and its growth before 59 and a half, they can withdraw all the contribution and development without a penalty.
And if they do need the money sooner, they can withdraw the original contribution without penalty. Here are some points for choosing a Roth IRA for your teen.
- Never Too Young – There is no minimum age to open an IRA account.
- Earned Income – A Roth IRA works on income, meaning that your teen has to make the money they invest. This income can be from a W-2 job or something simpler like babysitting or dog walking.
- Investment Cap – As a teen investor and even as an adult, you can never invest more than you make. So, if your teen made $5000 last year, that's the most they can buy into. And if you're in a position to do so, you could split that total, matching their investment as a reward for all the hard work they've done and their intelligent money decisions.
- Market Watch – Once your account is open, you can invest in anything market-related. Having access to your new account means choosing individual stocks, mutual funds, or even Exchange Traded Funds to invest in.
Teaching Starts Now
It's normal to approach anything teen-related with a bit of caution, but when it comes to money, there are several ways to get your teens involved in learning about money and finances in general.
Deb Meyer, founder of Worthy Nest and author of the finance book, Redefining Family Wealth, encourages parents to help their teens “make a sample investment portfolio of 5 to 10 positions so they can track their performance.” She adds that with the stock market declining, “Equities are on sale, and while you would have paid a premium to invest in 2021, that's not the case in 2022.”
Let your teen invest real money in the stock market and see how their stock picks fluctuate or grow over 4-6 months. This real-life experience will teach them a valuable lesson about how the stock market works and how to grow their money over time.
As mentioned above, TikTok can be a great conversation starter. YouTube and Instagram might also offer avenues for getting teens involved in at least discussing finances and education.
But most importantly, your teens are watching you. What you do, they will likely emulate, and if you struggle with finances, reach out for help and teach your teens that there's a different way to handle money without all the struggle.
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