Do you have a teen who is already receiving paychecks? Well, if you do not have there are important money conversations you must engage them in once they start getting paid.
And if you have, your job as a parent or guardian is to channel your teenager’s attitude in the right direction. Kickstart money talks with them and ask them money-related questions when necessary.
So, we’ll discuss more money goals such as long-term goals and short-term goals for your teens and also why they are important to help your teen save and plan for unplanned expenditures. The discussion will also uncover how you can kick off money talks with your teen and also make it a constant part of your teen’s life.
Young paycheck earners should get involved in investing early. By engaging them in necessary money conversations, you’ll be able to guide them into avoiding common money mistakes and establish their feet in a healthy financial future.
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Why Should My Teen Start Setting Money Goals?
It is first of all important to know that financial goals are milestones you put in place for your money within a projected time frame. Setting financial goals are very crucial to your overall financial health and they are equally very important to your teen and your other kids.
A certified financial planner at Priebe Wealth, Jason Priebe said that encouraging teens to save money and institute financial goals will help them discover how important financial literacy is, “and creating healthy habits around their finances.”
Short-Term Savings Goals
Short-term savings goals are saving goals that do not take long and can be achieved within a year or less. Consider goals that can be put to effect in just weeks or very few months. An example is saving for a concert next month.
There are other personal and interesting goals you can engage them in. It is always important to know what interests them, and then sit them down and discuss how much they earn per week or month. If you’re looking at a concert the following month, ask them how much it costs to get the ticket, and then guide them in saving to buy it.
Put down things you have discussed into writing and display them in areas around the house where they can be seen easily and often.
Long-Term Savings Goals
If you are setting long savings goals, it will typically take you over a year to achieve. These kinds of goals may have nothing to do with acquiring a new house or embarking on some huge projects. It may simply be buying their first car, paying for college, and going on a spring break trip with their friends. When setting long-term goals, you can help them to make it more effective by introducing a budgeting method.
Here are some budgeting methods to consider for your teens.
50/30/20: The 50/30/20 budgeting rule can help your teen save for their personal goals, spend on their needs, and also satisfy their wants. After paying taxes, 20% of their earnings should go into long-term savings, 30% should be channeled towards their wants, and 50% should be towards their needs.
Pay Yourself First: The pay-yourself-first budgeting will help your teen calculate their earnings after paying off taxes and also find out what amount they need to satisfy their needs, and how much they need for their goals. Whatever figure they arrive at is regarded as mandatory expenses like paying for their first car and auto insurance payments.
What Does It Look Like To Save?
“Many teens graduate high school and go off to college without a real understanding of saving money and how to spend responsibly,” Priebe said. “When this happens, they may make financial mistakes that could follow them out of college and into their adult years.”
When you teach your kids about budgeting effectively and saving for plans, they’ll learn to live within their means when getting started in their careers.
Opening a savings account will make their goals more realistic. But since most financial institutions will not permit underaged people to have a savings account on their own, it’ll make sense to do it as a joint account at first, and then let them have it when they are of age.
Choose a savings account at a credit union or traditional bank close to your house with online tools for digital banking that can help your teen do a lot on their own without being physically present at the banks. Depending on your savings goals, find out with your teen for suitable savings account preferably with no fee, and work best for their savings, accessibility, and earnings.
According to a finance professor at Creighton University, Robert R. Johnson, “Teaching teens the basic lesson that passing up current consumption for greater future consumption can change their life for the better.”
Planning for Emergency Expenses
Your teens should be able to differentiate emergency savings from other kinds of savings.
Founder of Harris Financial Coaching, Annette Harris stated “Saving for a financial goal, like buying a television, can be completed on a short-term or long-term basis. However, saving money for unexpected expenses helps you maintain financial stability in a job loss, car accident, or medical emergency that medical insurance does not cover.”
Your kids need to know about unexpected expenses and how to plan for them. For instance, if their car breaks down, they should have an emergency fund to get things fixed without having to borrow money for it.
Put Your Money To Work: Investment Options
Set up a custodial investment account for your kid. You’ll have to be the one to set it up for them and leverage on the opportunity it offers to teach kids basic skills in investing. Explain the investment options in your teen’s account and review statements with them.
“A custodial account is a wonderful way to teach a child about investing while maintaining control of where the assets are invested,” Johnson said.
Priebe believes that if teens can trust companies they love with their money, they’ll be inclined to invest.
“For example, if your child is an athlete and supports Nike products, you can talk to your teen about Nike as a company, track how their stock is doing, and even buy some shares of it together for them to learn,” Priebe said.
Investing Large Money Gifts
Your teens are very likely going to start receiving bigger gifts in the form of money from friends and family members as they grow older. The gifts can be received for special milestones such as bat mitzvah, graduation, or sweet sixteen.
Your kids are likely to be tempted to spend the money for their wants, saving the cash gifts can ease their life when they grow older. Encourage them to improve their attitude towards achieving long-term financial goals such as college or saving.
What’s the Deal With Taxes?
Teach your teens to develop the right attitude towards taxes. Let them know the basics of paying taxes. Let them understand that taxes are deducted from their paychecks, which means that their earnings will reduce as a result.
Explain also that every year, they’ll have to file a tax return and can employ the use of a tax professional or software to help. Teens may find it a bit hard to comprehend tax discussions so, it is important that you keep it simple with them.
Keeping the Conversation Going
“Basic financial literacy is incredibly important because financial mistakes made early in life can change the entire trajectory of one’s economic life circumstances,” Johnson said.
He advised that every parent should make time out to do money talks with their teen when necessary. According to him, this approach will help them avoid crippling experiences in their financial life
A postdoctoral researcher at the University of Chicago’s Booth School of Business, Margaret Echelbarger, said that engaging the kids in money matters at home is a way to keep them involved in the money conversations naturally.
“In short, it’s important to create opportunities for children, adolescents, and teens to use money — saving it, spending it, and even making mistakes with it,” Echelbarger said.
He added that children, adolescents, and teenagers should be carried along in household financial decision making when necessary. This could be as simple as drafting a grocery list given a budget.