Show them the money, but talk about debt
Life and debt
Debt is the ugly side of personal finance, and even if you personally have never struggled with it, it’s a topic your teen needs to hear about, especially as he approaches his first credit card. The important lesson: Always pay off the whole balance.
A credit card is not free money, but rather borrowed money that must be repaid. If your teen only pays the minimum payment each month, the credit company charges him ‘interest’ on the rest of the money, which can vary from card to card but usually sits around 20%. Some companies charge interest from the day customers purchase that new pair of shoes; others charge interest based on the balance at the end of the month.
And no matter what the details, paying only the minimum balance can land your teen in major debt, especially if it becomes a habit. Read almost any debtor’s tale of woe and it will start with ‘I would pay only the minimum balance…’
Show them the money
One of the easiest ways to introduce teenagers to financial planning is to include them in your financial planning. Many teenagers have no idea how much it costs to live, as everything is provided for them. To make it worse, parents don’t always discuss finances with their children, especially in recessionary times. Every teenager should know how much her family earns in a year, and start learning how much it costs to live.
Start small, by bringing your younger teen grocery shopping, to show her how much food costs. As your teen gets older, start including her when you’re paying your monthly bills, so she learns how much her hi-speed internet costs. When she starts nagging for her own car, show how much it costs for you to own and drive a single car. As she approaches university age, show your teen how much you pay a month in utilities and mortgage, so she has a rough idea of how much it costs to live on her own.
When to comes to learning about money, it’s easy for a teen to get overwhelmed. As each teen is different, you might find one of your teens catching on while the other is struggling; this is normal. By starting kids off with healthy money habits, you'll give them a head start in the financial world. And when the next recession hits, you’ll have given them the skills to float while others flounder.
Need to brush up on your own financial skills? Recession-proof your finances, confess your personal finance sins, and do the math on how you spend your cash.
This article is original content on More.ca
