It’s never too early to start teaching your kids about money—understanding personal finance is an important life skill. While math classes might cover some basics, most schools don’t teach practical financial lessons. As a parent, you can help supplement your teen’s education by teaching them essential skills that can benefit them for life.

Credit scores

Your credit score impacts so many things, including whether you qualify for the credit card you want or a mortgage. Explain what a credit score is to your teen. Walk them through the different factors that go into calculating a credit score. Tell them about things like building credit, getting their free credit report, and evaluating their score. 

How credit cards work

Credit cards can be a useful tool when used responsibly, but it’s important for teens to understand how they work. Explain interest rates, fees, and the importance of paying the balance in full each month. Tell them what applying for a credit card can do to your credit score and discuss how many credit cards it makes sense to have. You may want to walk them through your own credit card use and show them how you pay a monthly bill online.

Understanding interest

Credit cards, savings accounts, mortgages—they all come with interest. Walk your teen through concepts like simple and compound interest. Teach them how to read the fine print on credit card and loan offers. Show them the impact of interest on debt and savings by comparing different loan or credit card offers and rates.

Budgeting

Creating a budget is an important skill that will become more important as your teen gets older. You might want to walk your teen through a sample budget while discussing the difference between needs and wants (and the importance of both), as well as fixed and variable expenses.

If your teen has a job, you might even teach them to budget their own money. Work with them to track income and expenses to see where their money is going each month. Help them set financial goals and create a realistic budget that accounts for necessities as well as fun things.

Saving

Discuss the importance of savings with your teen. Explain what an emergency fund is, what it might look like, and why having a cushion is important. Talk to them about different types of savings accounts, such as high-yield savings accounts and traditional savings accounts, and ways to grow savings. If your teen doesn’t have a savings account, this could be a good opportunity to sign up for one.

(Basic) taxes

While your teen might not be filing their own tax returns yet, they’ve probably encountered sales tax and might even be paying taxes on earnings at their part-time job. Teach your teen the basics of how income taxes work. Explain how tax brackets can determine the tax rate, and common deductions or credits that can reduce the amount owed. If your teen has a part-time job, go over their pay stub together and explain what each of the numbers means. Knowing about the tax system can help them file correctly in the future and understand where their taxes are going.

The range of financial products

Giving your teen an idea of the range of financial products out there can teach them how much more there is to learn. There are many options for banking, investing, borrowing, and more. Give them an overview of the range of financial products out there, like checking and savings accounts, CDs, stocks, bonds, mortgages, auto loans, whole life insurance, and other types of permanent life insurance.

Discuss the pros and cons of different products and how to choose what’s right for their needs. With this understanding, they’ll be better equipped to set financial goals and make wise decisions as adults.

Source: iQuanti