May is National Foster Care Month which provides all of us an opportunity to reflect on how we raise our children. Traditional and non-traditional parents and caregivers want their children to be healthy, safe and to feel secure. What better way to make children feel secure than to teach them how to manage their own money so in the future they can be financially independent?
According to an article published by Foxbusiness.com, “Teaching Gap: 83% of Teens Don’t Know How to Manage Money” our youth could most certainly use the guidance. In summary, the article describes how teens want to learn how to budget money and that they know its importance, but lack the fundamental discipline and knowledge financial responsibility requires.
First, let’s discuss checking and savings accounts. Having one or both of these accounts is usually the first step to gaining financial independence, but everyone must know the functions of both of these accounts to manage them properly. A checking account is paired with a debit card, which should be used at the credit union or bank closest to you to avoid transaction fees. Advise your teenager to always keep their debit card in a safe place so they do not lose it and are not always tempted to use it often.
Second, your teen should always know how much money is in the account and they should keep receipts of all of their transactions, which will help them stick to a budget. At the conclusion of the month, they should reconcile the account with their receipts to monitor spending. Parents should use this as an opportunity to teach good spending habits and offer advice on how to spend wisely and save.
Third, a savings account is just that, an account you use to save money. It should be money your teen saves with a specific goal in mind such as for emergencies, for their first big purchase like a car, or for their future education.
Fourth, you should talk to your teen about the merits and pitfalls of credit cards, especially if they plan on going to college. Many banks will target colleges and universities because they know teens are a vulnerable audience. Used wisely, a credit card has many benefits such as establishing a good credit history. But there are many dangers such as overspending and slow to no payments, which would lead to ruining credit. Let your teen know that good credit means they have a better chance of getting a car loan or a mortgage with a low interest rate. A high interest rate can add thousands onto the initial amount that they borrow.
Make your teen accountable for their credit card payments. Encourage them to use it for small purchases so that their monthly payments are manageable. Keep in mind you should never charge more than you can afford to pay back. If you pay your credit card bill every month on time your bank may increase your credit limit but that does not mean you should increase your spending.
Finally, remember that encouraging your children to be financially savvy at a young age will help them learn skills such as critical thinking, discipline and management skills. In the article, teens were surveyed and the findings showed that 44% of teens earned income outside of the home while 30% received some sort of allowance from their parents. Caregivers and parents are the role models for their children when it comes to money management and spending habits.
During the month of May and in honor of National Foster Care Month, I hope as parents and caregivers, you empower your children and children in your care to become financially responsible.