The Summer Teen Finance Guide
“School's out for summer. School's out forever. School’s been blown to pieces.
No more pencils. No more books. No more teacher’s dirty looks.”--Alice Cooper
Sorry if I just got that song stuck in your head. Or perhaps, you have zero idea what I’m talking about.
Here’s a special treat for you: https://www.youtube.com/watch?v=2Oo8QzDHimQ&ab_channel=AliceCooperVEVO
If you are anything like me, you are wondering how the heck you are going to manage having your teenagers home all summer. I work from home, so having their days filled with positive activities is a must. One of mine is old enough to work and he has a great summer job. The other one is 14. No camps, no job, can’t drive, you remember those days. . . So, if you are in a quandary like me, I’m offering up this teen finance guide as something uplifting you can work on with your teenager this summer. If you fit a few of these projects in during their time away from school, you are being a stellar mom who sets her kids up to be financially savvy. You win and so does your teen.
It starts with a J-O-B. If your teen has a summer job lined up, good for them! They will be learning all kinds of great things like responsibility, being kind to others, listening to authority, attention to detail, following directions, being a self-starter, and myriad other skills. If, like one of mine, they have been challenged to find a paying job out of the house, set them up with some household duties or neighborhood helper ideas. My son is walking dogs in the neighborhood for $10 per 30-minute walk. He’s making some good cash. Either way, instill a work ethic and get them to make their own money. This way, you can introduce the following financial tips/tricks to them and it will resonate more when they have earned money on their own.
Introduce good saving habits. Help them get set up for success financially by encouraging them to learn the 20% rule of budgeting. This rule states that we should be saving 20% of our income for the future. Every time they get paid, help them put away 20% of their income into a savings account and have a conversation about what they want to do in the future with their saved money. When the savings has an end-game or item attached, it will mean more to them and foster the desire to save. Encourage them to dream big about what their savings can do. Online banks like Ally, Marcus, and Synchrony are paying well over 3% interest which is another topic to teach kids how their money can make money over time.
Learn about banking. Some banks allow for student checking/debit accounts as early as age nine. Others wait until the age of 13. Check around and see how you can set your teen up with their own spending account–the sooner the better on this one. Teach them to immediately tuck the 20% away in savings and set up a spending plan or budget with the rest. Show them how to use online banking and have checking and savings connected electronically for ease of transfers (can easily be two different banks). Getting in the habit of assigning every dollar a duty will help them to become great money managers over time. Have them write out a list of all the types of expenses they have so they can start to budget appropriately.
Talk about credit. Building credit and using credit wisely is a very important part of our American financial reality. Teach your kids how to use credit wisely. When you can use somebody else’s money to build your credit score (helping loan interest rates be as low as possible), make money (with rewards), and purchase assets (houses, businesses, etc.) that increase in value over time, you are winning the credit game. Some credit card companies allow for authorized users as young as 13. Set rules upfront, like only being able to put their gas money on your shared credit card and ensure they pay the balance in full every month. Start slowly to build responsibility and good habits over time. When they turn 18, they are able to start building credit on their own. We recently had success getting my 18-year-old son his first solo credit card with Discover (with a small $500 credit line). Look for cards with no annual fee that pay rewards and provide free FICO (credit score) tracking.
Teach the basics of investing for the long term. If they are earning income, they can open a Roth IRA. I just set one up for my 18-year-old for his graduation gift. I provided a printout showing him that a $225 per month contribution at an average 7% annual growth rate will produce over a million dollars by the time he’s 65. Use this link to teach the beauty of compounding interest: https://www.investor.gov/financial-tools-c alculators/calculators/compound-interest-calculator . If you have set up a 529 plan for their college savings, have a conversation about the investments held and how the plan works. If you have an investment advisor, set up a meeting with them and let your teen sit in. Sometimes it sinks in faster when presented by a professional and someone who isn’t named “mom”. I know this one well.
So, in closing, these are five pretty basic ways you can start to teach your kids great money skills. If you are anything like me, I didn’t learn any of this in school or from my parents. It was all trial and error and a lot of self-education (later my profession). Do your kids right and set them up for success. Let money be an open conversation in your house and not some secret mystery that is only discussed behind closed doors. They will thank you later when they avoid major financial setbacks their less-educated peers are facing. Good luck and let me know if you would like to discuss any of this further. Your free Q+A is available by clicking here.