Money management is an important aspect of adulthood. And yet, we are averse to talking about it with our children. Topics around money remain out of the parenting process somehow, and it’s only at a later stage in life that kids figure out money, either through school, college or on their own.
As your child matures and prepares to face the world as an adult, it’s essential to support the development of strong financial responsibility. And the earlier you start inculcating the same, the better they will be at it.
In fact, teenage money management is an important aspect of making them responsible from a young age. Not only does it make them more aware of their monetary situation but it will also give them the opportunity to make the right decisions growing up.
And to help you do achieve that with your child, here’s a quick guide about teenage money management. These tools and techniques will help your teen gain a better understanding of how to manage their money.
1. Teenage Money Management 101: Get A Part-Time Job
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“Free money”- like an allowance received from family, with no strings attached, can feel like just that – free. While some pocket money may be necessary for transport and food in school, receiving excess amounts (such as for spending on shopping and entertainment) may ultimately cloud your teen’s perception of money’s worth. To help your child understand the hard work behind each dollar, you may want to encourage them to take on a part-time job.
As of 2017, only 14 per cent of teens between 15–19 years old were engaged in the labour force. However, those in this age group who’d finished secondary school earned approximately $703/month. Considering the average Singaporean household spends just $200/month on shopping, it’s safe to say such earnings would cover the social needs of a teen. At the same time, it will expose them to the “true cost” of their favourite items.
2. Independent Budgeting: Balancing Earnings & Spending
If your teen’s taken on a part-time job, they now have the added freedom of controlling their own discretionary spending. While it may seem like common sense to an adult, it’s worth sitting down with your child to discuss basic budgeting. Earning money won’t suddenly free them to buy everything they want. They will need to balance their impulses with more enduring goals.
You may want to consider starting your teen out with a supplementary credit card. These are typically available through your own credit card. Such cards are usually free or have very low annual fees. The principal cardholder, which is you, can often set a credit limit and monitor all account statements.
Furthermore, your teen’s spending will earn cash back or miles at the same rate as your own card. These rewards will be credited back to your own account. While this might not seem fair to your teen, they’ll still have access to perks like dining and lifestyle discounts, all while learning to budget and use a credit card responsibly.
3. “Hands Off” Saving: Fostering Patience With Money
Even if your child is working and spending responsibly with a credit card, it’s still essential to take a step further and teach them financial patience and restraint. If they are earning an income, a smart teenage money management lesson would be to set some of that money aside as a fixed deposit or in a savings account. You can also consider investing on their behalf and help them track growth from interest.
For reference, fixed deposits are risk and maintenance-free savings tools. Consumers deposit a set amount and earn at a set interest rate for a specified period of time. Some banks accept deposits of as little as $500, and those over 15 years old are eligible to apply. Removing funds before the end of the established tenure forfeits any interest earned, therein promoting patience on your teen’s behalf.
If the minimum deposit size is out of reach, you and your teen can opt for a savings account instead as a great training option.
SOURCE: VALUE CHAMPION
Some accounts, like OCBC Frank Savings Account, do not have a minimum initial deposit requirement. Savings accounts are usually flexible, allowing for withdrawals as needed. However, most accounts have a minimum balance requirement, and falling short incurs a fee.
Overall, a savings account may be a more advanced option for teens who can maintain savings consistently. It’s also highly recommended in the long run.
4. Family Meetings: Learning & Preparing For The “Real World”
Finally, consider holding weekly or monthly family meetings to discuss your household’s finances. Working to earn money, learning to spend responsibly and saving can all contribute to your teen’s growth.
However, the biggest teenage money management lesson is to prepare them for the “real world” and provide exposure to larger issues. This includes paying bills or even taking out a loan.
It’s far better to explain these processes in context to your teen now than have them face such issues later without any experience. This doesn’t mean you have to share everything with your child. Prioritise discussions that are less confidential and that would be meaningful to their growth.
This article was published with permission from ValueChampion. ValueChampion is a free source for information to help consumers make educated decisions on personal financial matters.
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