Empowering Teens with Money Management Skills
Money management is a crucial life skill to develop for life. Every individual should strive to get the hang of it as early as possible, and teenagers would benefit greatly from developing it during their most formative years.
Empowering Teens with Money Management Skills
That said, it can be a challenge to instill discipline in a teenager, especially on the topic of money saving and financial literacy. Temptations and impulsions are strong at this age, and money doesn’t exactly come easy to these young adults.
Regardless of the underlying challenges, it’s essential for teens to hone strong money management skills. Being a consistent money saver in one’s early years can lay the groundwork for a financially successful and prosperous adulthood.
This then begs the question: what money management skills should teenagers hone in the first place? How can they then go on to build and strengthen their financial skills for lasting success?
We got you! Read on to know these money management strategies every teen should know. Let’s start!
1. Formulate Short and Long Term Financial Goals
Teenagers may not be at their financial peak, but they have one valuable resource by their side: time.
Considering their age, teenagers have the flexibility to create several short-term and long-term goals for themselves. Many of these goals can be active for decades or more, giving the youth ample time to prepare and work towards achieving them.
These goal categories can be divided into three distinctions: short-term, medium-term, and long-term goals.
Short-term goals typically last for a year or less, while long-term goals last for 5 years or more. Medium-term goals fall somewhere in between. The length of time is also relative to the context of the goal.
The best type of goals to create are those that follow SMART goal principles. SMART is an acronym that stands for specific, measurable, achievable, relevant, and time-bound.
A goal to achieve a million dollars isn’t a goal that can call you to action. On the other hand, a goal to achieve a million dollars by the age of 30 through saving, investing, and increasing your active income is a better and more sound example of a good goal.
Goals help structure your daily life and give you something to work towards. Identification of a goal also makes you more committed to fulfilling it. This, in turn, can increase your likelihood of actually realizing your goal.
2. Save Money Regularly
The thought of a teen’s weekly allowance replenishing can be more than just a little bit revitalizing. But if you constantly find yourself with a dry wallet days leading up to the next allowance, this can be quite an opportunity lost.
As much as possible, try to get into the habit of saving money regularly. You don’t have to deprive yourself of all your needs and wants, but you don’t want to return to your income source with not even a cent to your name either.
To form a saving habit, start by cutting back on spending on goods that you can live without. For example, you can stop buying daily coffee from the cafe on the way to work.
You can also substitute these things with cheaper alternatives as well. If your workplace has a pantry, for instance, use their complimentary coffee packets to satisfy your caffeine cravings.
Besides cutting back on spending, you can also use savings tools like a money jar or a savings account to strengthen your financial discipline. These tools help provide separation from your savings and your spending money, which can make you less likely to spend on non-essential goods overall.
You can use the SMART goal above to help structure your savings goals. A good way to utilize it is by making a monthly goal savings percentage and altering your spending behavior to reach it.
By saving your money, you’ll get to keep and secure more of your capital. In turn, this puts more money into your bank account, which can give you more flexibility to achieve goals that require larger financial resources.
3. Create a Good Budgeting Plan
A financial budget is the perfect resource to help teens stay on top of their finances. It helps you visualize and track your income and expenses per transaction.
Your income can come from various sources, like allowance, gifts, and part-time work income. You should break these down for a better record of your income sources.
You should also break down your expenses per category, such as transportation, food, and rent. This makes it easier for you to know how each category is performing (and if they’re exceeding expectations), allowing you to make adjustments accordingly.
A budget, when consistently updated, gives you a real-time glimpse of your financial status. This can help you make informed decisions on how to handle your current finances.
There are many types of budget templates available. You can use templates from Microsoft Excel or GSHeets to tailor your budget.
Alternatively, you can also use budgeting apps like GoHenry and Acorns that have a fitting interface for your needs. Being primarily smartphone-based, these are usually more accessible for teens too.
Besides its primary function, a budget also helps you see your historical spending and income. This can be good for identifying patterns and areas where you can cut back.
4. Understand the Banking System
You likely already have a bank account opened up for you by your parents. But if not, then it’s best to get one set up as soon as you can—even if you’re under 18.
A bank is one financial institution that every responsible adult should be somewhat familiar with. It’s among the best places to store your savings. This is because a bank is accessible, interest-earning, and secure for the most part.
That said, banks also have a lot of other services that teens should be aware of. For instance, people can take out loans if they meet eligibility requirements, such as a high credit score. People can also make investments with the money they put in their bank accounts. You can also automatically pay bills with a bank’s phone app, which is super convenient.
The most rudimentary features of the banking system are what teens should be aware of, though. This includes making a withdrawal and making a deposit. Knowing how to do this, both physically and online, can make teenagers more empowered to use their money most effectively.
If you want to know more about how to effectively manage money as a teen, learn more about it here.
5. Learn About Investing
Actively working for days on end to gain income is the norm for adulthood. But that’s not the only way to earn money. You can passively earn income by making informed financial decisions and executing them.
Investing is a crucial life skill to know, and learning about it as a teen can be very helpful. Start by educating yourself on the basics of investing, such as stocks, bonds, and equity funds.
These investment vehicles tend to have a low barrier to entry, but you may need to open a minor brokerage account for it if you’re under 18 with your parent’s supervision.
Learning about investing early on is useful because of the steep learning curve. There are many technical and fundamental topics surrounding this financial activity that teens should familiarize themselves with if they want to become competent investors.
Learning about them early on gives them an advantage in life, considering the fact that many investments take years to bear good value. By learning about and executing investment strategies, you can become one step closer to achieving financial independence.
6. Learn About Debt and Leverage
As a teen, you likely don’t have a large store of cash that you can access on a whim. This is where debt can come in handy.
Good debt can help you pay your loans and obligations over a long period of time. This is useful to help weather the intensity of big purchases, like college tuition or a new gadget.
The only catch is that these payments cost more in total due to the presence of interest rates, but the convenience often makes it more than worth it.
That said, it’s important to know the dark side of debt as well. If you fail to make monthly repayments on time, you may end up incurring higher fees as well as penalties. If left unchecked, this can spiral out of control, putting you in an even worse financial position than before.
As such, it’s important that you balance debt effectively and not bite off more than you can chew. This way, you can access capital and other important things in life earlier than you otherwise would by saving without putting yourself at financial risk in the process.
