By Urjit Patel
If there’s one huge gift we as parents can give our kids, it’s the knowledge they need to grow up to be financially stable adults.
As National Teach Your Child to Save Day rolls around today, now is the perfect time to start teaching best practices for savings. And with the graduating class of 2019 about to walk the stage, it’s urgent that parents make sure their teens have the information they need to manage their money.
But before you can expect kids to happily embrace the idea of setting money aside, they might need your help understanding a few things to make it all click, including:
- The value of money
While you may have encouraged your kids to save money for big purchases, many teens still don’t understand all the “whys” behind saving. They’ve never had to pay for things such as unexpected car repairs or monthly expenses like a utility bill.
TRY THIS: If your teen isn’t working or doing chores already, get him or her started right away — and begin paying for some personal expenses, such as gas and weekend entertainment. Work together to create a budget of monthly income and anticipated expenditures to help create a clear picture of “money in” and “money out.” If your child is headed off to college, discuss which living expenses he or she will be expected to cover and how to accomplish that.
Before teens can truly master money matters, they should understand how money moves around. They need a solid rundown on the basics, from checking and savings accounts to bank fees, to how debit cards work and what it means to “bounce” a check.
TRY THIS: Start off by opening a “checkless” checking account for your teen. One of the biggest bonuses of these types of accounts is that you can’t overdraft, which is good news when your child is still learning the financial ropes. Axiom Bank’s AxiomGO checkless checking app also lets you safely transfer money to your child’s account without visiting a bank branch, track expenditures, set up budget categories and more.
- Why you should always “pay yourself first”
It doesn’t mean splurging on a shopping spree or an expensive restaurant. “Paying yourself first” is the financial concept of automatically routing money into a savings account before allotting funds for other expenses. Regular, consistent contributions are key to building short-term savings (new car, vacation, etc.) as well as a rainy-day fund and a “nest egg” for the future.
TRY THIS: Help your teen open both short-term and long-term savings accounts. If he or she has a steady paycheck, sign up for direct deposit and then schedule automatic payday transfers from checking into each savings account. My $ Manager, AxiomGO’s integrated budgeting tool, lets you create a budget and set savings goals and spending limits.
- How credit can hurt — and help you
It’s vital that teens understand how borrowing money works, especially since they’re on the cusp of becoming credit-holders themselves. Building a credit history is important for financial success in adulthood. But with 4 out of 5 Americans in debt, your child needs to be aware of the potential pitfalls of credit. Help them understand that racking up too much debt or making late payments can result in huge interest payments and late fees that will damage their credit score — as well as their ability to borrow money in the future.
- The concept of interest
Your kids may not realize that “smart” saving is more than just sticking cash in a jar on a shelf. That’s why you must explain the idea of compound interest to them: When you save, you earn money on the funds you’ve stashed away. Just don’t forget to stress that the reverse is also true: When you borrow money, you pay money on the money you’ve been loaned.
TRY THIS: Use an online calculator to show how money saved will grow exponentially with various interest rates. One way to make the idea of interest more real to teens is for you to make contributions to their savings as they reach their goals.
Urjit Patel is the Executive Vice President of Consumer Banking at Axiom Bank, N.A., a nationally chartered community bank headquartered in Maitland. He can be reached at firstname.lastname@example.org or 321-972-3971.