While money is not all there is to life, it is one of the cornerstones of society. You earn money through jobs, and use money to purchase your needs and wants. It is something that children must be taught about because knowing from a young age how areas of finance impacts an individual can shape their relationship with money in the future.
To keep your child from overspending and overextending credit as an adult, he or she should learn to be financially savvy as a teenager. Hence, financial literacy, which covers budgeting, learning to set aside money for savings and investment, and understanding key concepts of debit and credit.
This is especially important now that digital payments make that purchase oh so easy that there's less time for considering the impact or necessity of the buy. It is also easy to let money slip through your fingers when you're not holding on to cold hard cash that you can see disappearing from your wallet.
As parents, it is our duty to guide our teenagers through their money decision processes so that they can develop responsibility and stewardship for their finances in future. Here are 5 tips to teach your child to be financially savvy.
Tip 1: Set up a savings account
Parents should set up a savings account under their child's name. After which, they should encourage their child to put the surplus of their allowance into the savings account, cultivating the habit of saving money. When their child is ready, the parent can then teach the child how to project their savings, as well as the different savings plan available from different banks and their various interest rates. This is a good time to explain how compound interests work vis-a-vis inflation rates, and how their savings account can help to grow their money over time.
Tip 2: Differentiate between a need and a want
Teenagers can be driven by their impulses to own something without learning to differentiate if the item they are looking to buy is a need or a want. Well, even us adults are guilty of caving in to impulse buys sometimes! While there is nothing wrong in buying something one likes, everyone should be able to recognise if the item is a good-to-have or a must-have. A guiding principle for your teenager is to get him or her to consider a few questions before heading to the cashier or clicking buy.
The questions are:
Do I really need this or do I just want this?
If it is just a want, can I afford it? Have I already treated myself to a want this month?
If I need this, do I need this now or can I wait?
If I really need this, can I get this item at a cheaper price?
Tip 3: Create a budget and stick to it
At the start of each month, your child should be handed an allowance. From the money that is given to them, they should create a budget which includes how much they need for their expenses — food, transport, money set aside for savings and shopping or outings with friends for the month. The tricky bit about having a budget for your teenager is to be firm and stick to the budget even if he or she runs out of money early. If you deviate from the budget and top it up, your child will never learn from his/her mistakes. Stick to the budget and train him/her to be disciplined in money so your teenager becomes financially independent.
Tip 4: Teach them not to buy on credit
Accumulating credit card bills is one of the most common pitfalls for young adults as they buy on credit, without tracking how much they have spent and if they have sufficient savings to pay off their credit card bills. Parents should avoid giving their child a credit card until they are mature and responsible enough to spend money prudently. And if the teenager holds on to a credit card, they should be taught the importance of paying the bills on time so they don't chalk up late fees and high interest rates.
Tip 5: Let them pay for their mobile bills
According to a survey done by
Credit Cards Survey in 2017, 74 per cent of parents still pay for their adult child's living expenses including include transport and mobile bills. For parents to break the habit of having to pay for their child all the way to adulthood, they should train their child to pay for their own bills. This can start when your child is given a mobile phone. Parents should consider letting teenagers pay for their mobile phone bills from their allowance so they understand the impact of their phone use. That also means that parents should factor bill payments as a part of the allowance given to them.
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