Teach­ing your teen about money

Porterville Recorder - - FRONT PAGE - JENNY POWELL Fi­nan­cial Ad­viser

Your teen is be­com­ing more in­de­pen­dent, but still needs plenty of ad­vice from you. With more money to spend and more op­por­tu­ni­ties to spend it, your teen can eas­ily get into fi­nan­cial trou­ble. So

Your teen is be­com­ing more in­de­pen­dent, but still needs plenty of ad­vice from you. With more money to spend and more op­por­tu­ni­ties to spend it, your teen can eas­ily get into fi­nan­cial trou­ble. So be­fore money burns a hole in your child’s pocket, teach him or her a few fi­nan­cial les­sons. With your help, your teen will soon de­velop the self­con­fi­dence and skills he or she needs to suc­cess­fully man­age money in the real world.

Les­son 1: Han­dling Earn­ings From A Job

Teens of­ten have more ex­penses than younger chil­dren, and your child may be com­ing to you for money more of­ten. But with you hold­ing the purse strings, your teen may have dif­fi­culty mak­ing in­de­pen­dent fi­nan­cial de­ci­sions.

One so­lu­tion? En­cour­age your teen to get a part-time job that will en­able him or her to earn money for ex­penses. Here are some things you might want to dis­cuss with your teen when he or she be­gins work­ing: Agree on what your child’s pay should be used for. Now that your teen is work­ing, will he or she need to help out with car in­sur­ance or cloth­ing ex­penses, or do you want your teen to ear­mark a por­tion of each pay­check for col­lege?

Talk to your teen about taxes. Show your child how FICA taxes and reg­u­lar in­come taxes can take a bite out of his or her take-home pay.

In­tro­duce your teen to the con­cept of pay­ing your­self first. En­cour­age your teen to de­posit a por­tion of ev­ery pay­check in a sav­ings ac­count be­fore spend­ing any of it.

A teen who is too young to get a job out­side the home can make ex­tra cash by babysit­ting or do­ing odd jobs for you, neigh­bors, or rel­a­tives. This money can sup­ple­ment any al­lowance you choose to hand out, en­abling your young teen to get a taste of fi­nan­cial in­de­pen­dence.

Les­son 2: De­vel­op­ing A

Bud­get

De­vel­op­ing a writ­ten spend­ing plan or bud­get can help your teen learn to be ac­count­able for his or her fi­nances. Your ul­ti­mate goal is to teach your teen how to achieve a bal­ance be­tween money com­ing in and money go­ing out. To de­velop a spend­ing plan, have your teen start by list­ing out all sources of reg­u­lar in­come (e.g., an al­lowance or earn­ings from a part-time job). Next, have your teen brain­storm a list of reg­u­lar ex­penses (don’t in­clude any­thing you nor­mally pay for). Fi­nally, sub­tract your teen’s ex­penses from his or her in­come. If the re­sult shows that your teen won’t have enough in­come to meet his or her ex­penses, you’ll need to help your teen come up with a plan for mak­ing up the short­fall.

Here are some ways you can help your teen learn about bud­get­ing:

Con­sider giv­ing out a monthly, rather than weekly, al­lowance. Tell your teen that the money must last for the whole month, and en­cour­age him or her to keep track of what’s been spent.

En­cour­age your teen to think spend­ing de­ci­sions through rather than buy­ing items right away. Show your teen how com­par­ing prices or wait­ing for an item to go on sale can save him or her money.

Sug­gest ways your teen can earn more money or cut back on ex­penses (e.g., rent a DVD to watch with friends rather than go to the movies) to re­solve a bud­get short­fall.

Show your teen how to mod­ify a bud­get by cat­e­go­riz­ing ex­penses as needs (ex­penses that are un­avoid­able) and wants (ex­penses that could be cut if nec­es­sary).

Re­sist the temp­ta­tion to bail your teen out. If your teen can de­pend on you to come up with ex­tra cash, he or she will never learn to man­age money wisely. But don’t be judg­men­tal-your teen will in­evitably make some spend­ing mis­takes along the way. Your child should know that he or she can al­ways come to you for in­for­ma­tion, sup­port, and ad­vice.

Les­son 3: Sav­ing For

The Fu­ture

As a young­ster, your child saved up for a short-term goal such as buy­ing a fa­vorite toy. But now that your child is a teen, he or she is ready to fo­cus on sav­ing for larger goals such as a new com­puter or a car and longer-term goals such as col­lege. Here are some ways you can en­cour­age your teen to save for the fu­ture:

Have your teen put sav­ings goals in writ­ing to make them more con­crete.

En­cour­age your child to set goals that are based on his or her val­ues, not on keep­ing up with what other teens have or want.

Mo­ti­vate your child by of­fer­ing to match what he or she saves to­wards a long-term goal. For in­stance, for ev­ery dol­lar your child sets aside for col­lege, you might con­trib­ute 50 cents or 1 dol­lar.

Con­sider in­creas­ing your teen’s al­lowance if he or she is too young to get a part-time job.

Praise your teen for show­ing re­spon­si­bil­ity when he or she reaches a fi­nan­cial goal. Teens still look for, and count on, their par­ent’s ap­proval.

Open up a sav­ings ac­count for your child if you haven’t al­ready done so.

In­tro­duce your teen to the ba­sics of in­vest­ing by open­ing an in­vest­ment ac­count for your teen (if your teen is a mi­nor, this will be a cus­to­dial ac­count). Look for an ac­count that can be opened with only a low ini­tial con­tri­bu­tion at an in­sti­tu­tion that sup­plies ed­u­ca­tional ma­te­ri­als in­tro­duc­ing teens to ba­sic in­vest­ment terms and con­cepts.

Les­son 4: Us­ing Credit

Wisely

You can take some com­fort in the fact that credit card com­pa­nies re­quire an adult to cosign a credit card agree­ment be­fore they will is­sue a card to some­one un­der the age of 21 (un­less that per­son can prove that he or she has the fi­nan­cial re­sources to re­pay the credit card debt), but you can’t ig­nore the credit card is­sue al­to­gether. Many teens to­day use credit cards, and it prob­a­bly won’t be long un­til your teen asks for one too.

If you de­cide to cosign a credit card ap­pli­ca­tion for your teen, ask the credit card com­pany to as­sign a low credit limit (e.g., $300). This can help your child learn to man­age credit with­out get­ting into se­ri­ous debt.

Here are some things to dis­cuss with your teen be­fore he or she uses a credit card:

Set lim­its on what the card can be used for (e.g., emer­gen­cies, cloth­ing).

Review the credit card agree­ment, and make sure your child un­der­stands how much in­ter­est will ac­crue on the un­paid bal­ance, what grace pe­riod ap­plies, and what fees will be charged.

Agree on how the bill will be paid, and what will hap­pen if your child can’t pay the bill.

Make sure your child un­der­stands how long it will take to pay off a credit card bal­ance if he or she only makes min­i­mum pay­ments. You can demon­strate this us­ing an on­line cal­cu­la­tor or by re­view­ing the es­ti­mate pro­vided on each month’s credit card state­ment.

If putting a credit card in your teen’s hands is a scary thought, you may want to start off with a pre­paid spend­ing card. A pre­paid spend­ing card looks like a credit card, but works more like a pre­paid phone card. You load the card with the dol­lar amount you choose and your teen can gen­er­ally use it any­where a credit card is ac­cepted. Your teen’s pur­chases are de­ducted from the card bal­ance, and you can trans­fer more money to the card if nec­es­sary. Although there may be some fees as­so­ci­ated with the card, no in­ter­est or debt ac­crues.

One thing you may es­pe­cially like about pre­paid spend­ing cards is that they al­low your teen to grad­u­ally get the hang of us­ing credit re­spon­si­bly. Be­cause you can ac­cess ac­count in­for­ma­tion on­line or over the phone, you can mon­i­tor your teen’s spend­ing habits, then sit down and talk with your teen about money man­age­ment is­sues. Cer­ti­fied Fi­nan­cial Plan­ning Board of Stan­dards, Inc. owns the cer­ti­fi­ca­tion marls CFP and Cer­ti­fied Fi­nan­cial Plan­ner in the US. ©2017 Se­cu­ri­ties of­fered through Ray­mond James Fi­nan­cial Ser­vices, Inc., mem­ber FINRA/SIPC. In­vest­ment Ad­vi­sory ser­vices of­fered through Ray­mond James Fi­nan­cial Ad­vi­sors, Inc. Pre­pared by Broad­ridge In­vestor Com­mu­ni­ca­tion So­lu­tions, Inc. Copy­right 2017. Jenny M. Powell, CFP is an in­de­pen­dent fi­nan­cial ad­viser with Ray­mond James Fi­nan­cial Ser­vices, Inc. She can be reached at 429-4270, jenny.powell@ray­mond­james.com, or www. ray­mond­james.com/visalia. The Visalia branch of­fice is lo­cated at 303 E. Cald­well Ave., Visalia, CA 93277.

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