For many teenagers, living on their own at college is a major reality check. While 71% of teens feel confident in their money-managing skills, many lack practical experience. Teach your child how to make sound financial decisions without your help. Here are three important lessons in money management for teens.
Lesson #1: Creating a Budget
Help teens understand where their money is going with a basic budget.
- Track spending. Before deciding how to allocate expenses, teens should track where their money goes for a few weeks. Include items they might not pay for now but will in the future, such as clothing, entertainment or extracurricular activities.
- Do the math. Help your teen come up with an income total for each month, including allowance, gifts or after-school jobs. Then budget necessary expenses first. If there's a shortfall, discuss ways to cut discretionary spending or increase income.
Lesson #2: Saving Money
Make setting aside income second nature for your teen.
- Be consistent. Teens should strive to put the same percentage of their income each month toward savings goals. This will help make savings a habit.
- Watch it grow. Once your teen is saving consistently each month, open a savings account and explain how compound interest can increase savings.
Lesson #3: Building Credit
Teach your teen the benefits—and risks—of buying on credit.
- Use responsibly. By carrying a balance from month to month, your teen could pay hundreds of dollars in compound interest charges. Discourage teens from charging purchases they can't really afford.
- Scores matter. Explain how to build a good credit history by avoiding late payments and keeping card balances low. Good credit will help your teen years down the road when securing a car or home loan.
State Farm® (including State Farm Mutual Automobile Insurance Company and its subsidiaries and affiliates) is not responsible for, and does not endorse or approve, either implicitly or explicitly, the content of any third party sites hyperlinked from this page. State Farm has no discretion to alter, update, or control the content on the hyperlinked, third party site. Access to third party sites is at the user's own risk, is being provided for informational purposes only and is not a solicitation to buy or sell any of the products which may be referenced on such third party sites.