As your child grows into a young adult, it's crucial to teach them strategic budgeting practices. As they land their first job, start paying for college, buy their first car, and rent their first apartment, budgeting skills will come in handy. We understand how daunting it is to figure out exactly how to teach a teenager these life skills. Therefore, in honor of Father’s Day, we outlined the most important financial skills parents should be teaching their teens.
Long-term vs. short-term expenses:
Although this might seem self-explanatory, this is a fundamental component of budgeting that many people don’t fully understand. Short-term expenses are recurring, such as groceries, utilities, rent, and car payments. Larger expenses, such as tuition or house payments should be paid off slowly over time to ensure that those short-term expenses are taken care of as well.
Your child might not be old enough to have their own budget list/spreadsheet yet. However, you can use your own as a teaching example. Don’t be afraid to involve your child in the finances of your family. Showing them your family's budget list will help them visualize how to allocate their money in the future by using a real-life example.
The Importance of emergency funds:
I’m sure that as a parent, you know very well about how often emergency expenses pop up. This is one of the many reasons why living paycheck to paycheck is so dangerous. Humans aren’t fortune tellers, and we never know if our car will suddenly break down or a medical bill will pop up. Having a savings account will give your young adult peace of mind when they encounter an emergency expense.
The fundamentals of investing:
Understandably, not many teenagers are interested in learning about the ups and downs of the stock market. Thankfully, investing isn’t all about stocks. Teaching your child about other options such as a Roth IRA or a mutual fund is a great place to start.
How to develop a positive credit history:
You need good credit for many big purchases in life. Unfortunately, not many teenagers understand the importance of building good credit and will get into debt at an early age. This prevents them from buying their first house or car. Teaching them the importance of paying their credit card bill on time can prevent them from credit trouble later in life.
Parenting is no easy task, and contrary to popular belief, it doesn’t end in young adulthood. If anything, young adulthood is a crucial time in which kids need their parents to make important decisions regarding their finances. We know this can be a lot of pressure, but with your help, your child will grow into a financially independent adult.
This article is meant to be general in nature and is not intended, and should not be construed as personal advice of any kind. Please consult your financial advisor prior to making financial decisions. Michael P. Davino, CFP® is a Financial Advisor with U-Vest Financial®, a separate entity from Waddell & Reed and can be reached at 850.300.7055. Waddell & Reed, Inc., Member SIPC.
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