In a recent survey about basic financial concepts, only 48% of high school seniors and 65% of college students answered 50% of the questions right.  This is a sad state of affairs as far as financial literacy goes.  I think that many parents assume their kids know what they need about money and don’t pass on the information that their kids will need in the real world. 

Here are some ideas of things you can do to help your teenagers be financially prepared for adulthood.

1 ) Balance a checkbook

Only 45% of high school seniors have a checking account.  And 25% have no bank account at all (not even a savings account).  And 1 out of 3 college students have bounced a check in their life. 

Kids need to start learning how to write checks and manage their balance sheet before they go out into the real world.  Help your kids out by showing them how to balance a checkbook, write a check, and open a bank account. 

2 ) Show them what a budget is

Kids need to learn to plan.  Maybe when they are 17 they can spend their money on what they want when they want.  But not as an adult.  They will have to save for their big expenses (rent, car, etc).  If they don’t plan for rent being due on the 1^st of the month and have spent all their money on toys, they will very possibly learn a new word that they don’t want to learn: eviction. 

Show your kids how to save money and plan for expenses by helping them set up a budget.  Maybe sit down and go over your family budget with them so they can have a baseline to start from.

3 ) The effects of college loan debt

Sit down with them and show them how much their college loan payments are going to cost them after graduation.  This will be very useful when it comes time to apply for student loans.  If they think its free money, they will be likely to apply for as many loans as they can get.  And then live it up during their college years.  But that is not the most prudent thing to do.  Show them the consequences of ‘living it up’ during their college yrs and financing it all through debt.  Seeing that they’ll be on the hook for $575 a month for 10 years if they take out $50,000 in loans may give your children an incentive to look for ways to cut costs.

4 ) Establish credit

Credit card companies hand out credit cards to college kids like most people hand out Halloween candy on Oct 31^st.  Show them how a credit card works and how expensive they are if you don’t pay them off every month.  Show them how expensive a 21% interest rate really is.  Show them how its possible to buy furniture for their dorm room and have to pay for it for 30 yrs. 

5 ) Determine the difference between wants and needs

Teenagers need to know that there is no such thing as free money (loans and credit cards are not free).  All money comes with an interest rate and must be repaid.  They are in college and don’t need very much at all.  They have a meal card, a roof over their head, and tuition paid.  That is about all they need.  Tell them that all the other things are going to cost them a lot of their future wages and it might be wise to start writing IOUs on your salary as a 24 yr old when you are 19. 

6 ) Pay taxes

Even though they are young, it would be a good thing to help them file their own taxes before they leave the house.  They likely had a summer job so they have some income to report.  And starting with a 1040EZ will be the perfect way of getting their feet wet with the US Tax code.  And they will likely be happy when they see that they are getting a big check from the government (most teenagers do not make enough where they have to pay taxes and most get all the tax money that they have paid back when they file their tax forms). 

7 ) Understand the total cost of something

For most teens, their first major purpose will be an automobile.  With buying a car, there is a purchase cost, but there are also many other costs related to buying that car (sales tax, registration, insurance, gas, maintenance, etc).  Make sure that your teenager understands all of the other costs (which you may have been paying for them while they lived under your roof).  Not only should the monthly car payment fit into his/her budget, but all the other things that go along with maintaining a car need to fit into the budget as well.  What is the point of buying a car if you can’t afford gas?

8 ) Help them learn how to be frugal

When kids are growing up, most of them are fairly careless when it comes to stretching a dollar.  That is because it is always someone else’s dollar that they are spending.  Well, when it is their own money, they are going to want to be more conservative with it.  Lead by example, don’t spend excessively, don’t shop till you drop, don’t buy things you don’t need.  All of those things will teach your kid that the right way to live is to spend money as fast as possible. 

9 ) Save money

After you sit down and show your child the negative effects of an interest rate on their credit card expenses are, show them the magical effects of compound interest.  Talk to them about the differences between a savings account and a money market account.  Talk to them about what a mutual fund is, how it works and why it is a good thing.  Show them how you plan to finance your own retirement and help them begin to think about financing their own retirement.  The money saved in your 20s is much more powerful than the money saved in your 40s and 50s. 

Best of luck.

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