When kids leave home, all parents hope they have the life skills they need to succeed. During those crucial teenage years, parents teach their children how to pick friends, how to do well in school, and maybe even how to clean their room. This is also an important time to teach children money-management skills -- while the penalties are low and before the burdens of real-life expenses begin.
"The biggest mistake parents make is handing out an allowance without any money-management skills to go along with it," says Laurie Campbell, a program manager at Credit Counselling Canada. Parents need to sit down with their teen to discuss savings, credit, living within one's own means, and how to avoid identity theft.
Saving: responsible money management
Encourage your teen to pratice budgeting his money so that he can put aside some savings. Challenge your children to save 10 per cent of their income, suggests Joe Chidiak, a banker and volunteer with the Canadian Bankers Association's There's Something About Money money-management program for teens. Or discuss saving for a goal. If they want a used car, for example, sit down with them and figure out how much theyll need to save to have the keys on their 16th birthday.
In many houses, the most important financial issue for teenagers is saving for post-secondary education. A frank, early discussion about financing options and what theyre expected to contribute can help them avoid student debt, and teach them the value of saving toward a long-term goal.
Spending: the value of money
It's also important for your kids to learn how to spend, so they learn the value of their money and how expensive shopping can be. Make money a subject you discuss. Take them along with you on grocery shopping trips and explain your choices for what you're buying; talk about where you got the money to go on vacation. And make sure your spending habits aren't out of control; like everything else in life, kids learn about money by example, too.
Chidiak says the kids he teaches in his There's Something About Money program are interested in this information and understand the importance of money management. As does Chidiak himself: "I always give them the same line: 'I wish I'd had this information when I was in high school. I would have run my finances completely differently.'"
Page 1 of 2 -- Find out when your teen is ready for a credit card on page 2
5 signs your teenager is ready for plastic
Another important part of learning money management is getting a credit card, complete with debt and credit risks. If you think your teen is ready, it's helpful for her to get a card as early as possible, in order to start a credit rating. Here's Chidiak's checklist for what teenagers needs to have before they're ready (and mature enough) for a credit card:
1. A reliable source of income
How large is their income? Is it consistent? What's a reasonable amount for them to pay off? All teens should keep below a $500 limit, and 15- or 16-year-olds with less money might only need a $100 limit. (If your teen is under 18, you'll have to co-sign, so you'll get to set her limit.) Some experts recommend never co-signing for your children, and waiting until they're 18.
2. A budget
"A budget doesn't have to be a spreadsheet," explains Chidiak. "It can be as simple as writing out how long it will take to save for something." They should be able to save toward a goal, and their paycheques or allowance should last the pay period.
Have they been putting 10 per cent of their income away? Savings are a good sign your children have learned to spend within their means, and a good cushion in case their credit card spending gets out of hand.
4. Shopping savvy
Kids who value their money comparison shop, says Chidiak, whereas kids who buy whatever's in front of them often buy based on peer pressure and impulse. Comparison shopping shows your teens frugality.
5. A plan, including long-term goals
If your child has sat down with you and discussed his plans for post-secondary education, a budget, or a savings goal, it's a good sign he's taking responsibility for his financial situation.
Warning! Credit cards can be bad for financial health
Ease the risk by obeying Campbell's rules:
• Have no more than one credit card.
• Start with planned expenses, like buying clothing.
• Pay off the full balance every month.
• If you need to bail them out with a payment, teach them responsibility by getting a written agreement on how theyre going to pay you back.
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