Teenagers are infamous for wanting their independence but few realize just how much responsibility comes with being an adult, especially where finances are concerned. There is little in the way of financial education within the Canadian school system although measures are being taken to change that. Personal finance education is for the most part left up to the parents to handle. Without the guidance and money lessons from a young age, children may have a harder time understanding and adapting to a life where they focus on saving rather than spending.
Here are 6 of the biggest money misconceptions teenagers tend to have:
1. Mom Will Pay For It
Parents who give in to their children’s wants are not doing anyone a favor. Kids as young as five years old can learn basic money lessons, which will make a difference in their adult lives. Children who have things handed to them may tend to carry the belief that even when they are older their parents will handle their money needs. This may perpetuate the belief that teens do not need an education on personal finance matters since mom and dad always come to the rescue.
Possible Solution: Parents should discuss financial boundaries with their teens such as committing to finance basic needs but insisting teens pay for things outside of that realm. Older teens can be encouraged to seek part time employment or odd jobs to earn the money they need.
2. I Don’t Need Good Credit
Teenagers that have not learned basic lessons about credit scores and why they are important to one’s financial life will likely have no interest in maintaining them. There are still some adults that spend reckless and overextend their credit without much thought to the long-term consequences. Kids tend to mimic how their parents handle money matters and if they see their parents not managing their credit, they likely will see little benefit in doing it for themselves.
Possible Solution: Teens who have established a credit history should review the information contained in the reports with their parents. Establishing an understanding of the way credit works and its importance in adulthood is a valuable lesson. Teens without a credit history should have the opportunity to look at a sample report or a copy of their parent’s information to gain an understanding of the responsibilities that go along with credit.
3. It’s My Money to Spend
Teens that have not learned the value of saving money from an early age may have difficulty accepting the lesson at a later stage in life. A good rule of financial stability is to pay yourself first by depositing a percentage of your cash into a savings account at regular intervals. Teens who are not used to stashing away that percentage may find it hard to part with the money they have earned. Those without the knowledge of basic budgeting techniques are also likely to spend cash recklessly without much thought. Impulse buys and frequent spending will likely result in the teen being cash poor and in debt to mom and dad.
Possible Solution: Establish a bank account with a child at an early age and encourage at least 10% of funds received to go into that account. This percentage rule should also include money received as gifts, from a job, or from allowance funds. Accompany the child to the bank and teach them how to fill out the deposit forms and reconcile their savings register. As children get older, they will already have incorporated the good habit and will likely stick with it through their adult life.
4. I’m Not In Debt
There are few teens who realize the realities of debt. But kids who have not been taught to budget and tend to spend all of their money will likely borrow cash from friends and family on a regular basis. These bad habits can perpetuate a situation later in life where spending gets out of control when young adults have access to credit cards and other types of financing. Relatives and friends who enable a teen to borrow funds for reckless spending are not teaching any valuable lessons.
Possible Solution: Budgeting a teen’s income can make all the difference in their ability to control spending and add value to the logic of living below one’s means. There are plenty of simple budgeting worksheets available online that parents can use to teach pre-teens how to prevent overextending their finances when they become older. Budgeting allows kids to see a visual of their money and can help them make better financial choices.
5. I’ll Definitely Make a Lot of Money
Teenagers are often commenting about how great of a job they will get after graduation. However, they fail to realize that many entry level jobs are of the low-paying variety. Many teens also feel they will have no problem earning a great living despite the fact their school grades are poor and their chances at higher education may be slim. Teens also may have difficulty truly understanding the financial obligations they will have in the real world that will evaporate their small paychecks.
Possible Solution: Parents can help kids review different career choices and research starting salaries for each. Additionally, a good overview of the financial responsibilities that come during and after college graduation will be essential to show teens how unrealistic their money expectations are as well as how important good grades and financial stability will be in the near future.
6. I Know All I Need to Know
One would be hard-pressed to find a teenager who doesn’t have a touch of the know-it-alls. When it comes to money matters, teens may feel they know everything they need to know. They may feel this way largely because they have no concept of the complexities still to learn about money. Teaching an older teen even basic financial lessons can prove frustrating especially when the child has some financial independence from their parents.
Possible Solution: The older a child gets, the harder it can be to instill the right financial tools into their normal habits. This is a primary reason parents should start financial lessons when kids are young. Children as young as age 5 can start grasping basic concepts like saving coins in a bank and these lessons can be expanded on and carried through for the rest of the child’s life. While there are plenty of resources available online that can reinforce financial lessons parents are teaching, it is initially up to the parents to start their children out on the right financial path towards adult responsibilities.
This post was written by Eliza Collins, a guest writer specializing in personal finance topics like savings, debt relief as well as credit score improvement. You can read more of her articles at the debt settlement blog.