Good habits are acquired early so teach your teenager financial smarts
It is common for parents in the UAE to give pocket money to their school-age children to pay for their lunch or other minor expenses. They also support their offspring through their university studies in the Emirates, making it rare for undergraduates to work or apply for a student loan to fund their tuition fees and expenses – something which is commonplace in other parts of the world. As a result, students may not appreciate the importance of financial discipline until they graduate or leave home or, even worse, when they encounter financial difficulties.
A recent study by Visa found that 43 per cent of respondents in the UAE between the age of 16 to 24 say they are not ready to manage their own money, while 53 per cent believe schools do not prepare them enough.
Interestingly, 48 per cent believe that financial institutions should have an advisory role when it comes to enhancing financial knowledge. So how can teenagers learn to manage their finances better?
As parents, we play an important role in shaping our children’s financial behaviour and attitude towards money. Many teenagers look up to their parents to set the right example when it comes to managing finances. While it might not be easy to discuss money with your children, particularly as they approach adulthood, the skills required to manage their personal finances can be conveyed early on. The idea is to get them to think beyond their pocket money, about their future dreams and plans.
Get savvy about saving
The Visa study indicates that only 28 per cent of the respondents in the UAE would like to start or continue saving. This is significantly below the 80 per cent average in a recent survey on the financial habits of youth in three European countries. The key to successful saving is making it a regular habit: setting aside a certain amount in a savings account.
It’s also important to save money for a rainy day – for example, to cover unexpected expenses such as a broken laptop. Parents can help their children categorise their goals into short-term, medium-term or long-term, whether it’s a new phone, bike, a holiday or something much bigger such as a car or a house.
Budget to determine what you need versus what you want
Teach your teenager how to create a budget and understand the difference between something you need to have and something you want to have. Once your child understands how to differentiate between their needs and wants, they may be surprised how certain categories add up more than expected.
Spend within your means
Show your child how to make smarter decisions when it comes to spending and to think carefully about purchases. Using a budget and learning to plan your purchases can make it easier to save money.
Keep debt in check
It is key to teach your teen that borrowed money is not free money – it has to be paid back. For older children about to enter the workforce, parents must explain how the amount they owe decides whether or not they qualify for future loans from financial institutions.
For example, in the UAE, Al Etihad Credit Bureau can track your credit history to identify how you have repaid previous loans, credit card balances and other obligations such as telephone bills. This history determines your credit score. If your credit score is lower, you may have to pay a higher interest on your loans. To access a credit report, simply download the AECB app.
Keep your money safe
The easiest way to protect hard-earned cash is to keep it in a safe place. Banks offer specific accounts for young people. Equally, just as they shouldn’t leave money where it could be lost or stolen, protecting financial information online is just as important. Teenagers are often digitally savvy, so explain that they can access information online – but with that access comes responsibility.