With the average person’s spending power dwindling with each passing year, it’s more important than ever to instill proper financial habits in your teen.
Financial literacy is a topic that helps your teen handle their money effectively. It educates them on various financial topics, like saving, budgeting, and leveraging debt.
With finances being an important resource for our everyday life, both in childhood and adulthood, improving one’s own financial literacy should be something everyone should strive to do. And the earlier you do it, the better the outcomes.
If you want to help your teen with this goal, then read on. We’ll give you seven tips on how to improve their financial literacy and set them up for prosperity and success.
- Highlight the Importance of Saving
One of the first things you should educate your teen on in the matter of financial literacy is saving.
Saving is important since it allows them to build their wealth slowly and methodically. It’s a discipline that requires patience and intention—which are crucial traits to instil in a growing child.
You can teach them the concept by grounding them with a practical example. For instance, if they’ve been asking you to buy a new toy, don’t give them the money to spend on it right away.
Instead, teach them that they can only get that money if they save up enough money from their allowance. You can give them an appropriate storage for their money, like a piggy bank or savings jar. Better yet, you could open a savings account for them to store and potentially grow their money through interest earnings.
Regardless of the method, saving up can mould your kid to become more responsible and goal-oriented. It’ll also teach them that it takes discipline to reach their goals—which can set a good tone for them when they grow older.
- Let Them Create and Manage a Budget
Another way to improve your teen’s financial literacy is by encouraging them to make and maintain a budget.
A budget serves as a recordkeeper for past transactions. Besides that, it also provides a glimpse of a person’s current financial status by showing an allowance, expense, and equity breakdown.
Budgets can come in different shapes and sizes, and there are some basic templates in spreadsheet software and online resources that children can use to start. These templates offer a clear visualisation of past and ongoing transactions, informing the teen of their inflows and outflows.
If these tools are a tad too complex, no problem. Kids can also use kid-friendly apps like GoHenry to track their expenses and manage their budgeting needs.
By teaching your teen how to budget, they can learn to become more disciplined and accountable for their finances as it relies on daily record-keeping. Upholding this habit can give your child the right information to alter their behaviour accordingly.
- Encourage Them to Create Goals
Financial literacy goes hand-in-hand with goal setting. A lot of goals and dreams children want to achieve require some amount of finances to realise. Moreover, striving to achieve these goals closely aligns with the practice of saving money.
Think of it this way. Say that your teen’s dream job is to become an actor. For that to happen, they’ll need to get adequate training, which requires money. Given that fact, they’ll need to work hard to save money to reach their goals.
The best type of goal to create is a SMART goal. SMART is an acronym that stands for specific, measurable, achievable, realistic, and time-bound. With SMART goals, your teen can create a goal that they can actually work towards and set micro-goals for.
Without a goal, your teen will feel less motivated to work hard, which can remove any sense of motivation for them to care about earning and upholding good money practices. As such, you need to help your child create a goal, even if they may pivot from it in a few years.
- Teach Them The Value of Investing
Investing may seem like an activity reserved for adulthood, and it is, for the most part.
However, children have a huge advantage in life called time, making them ideal candidates for learning about investments early on.
Familiarise your kid with common investing terminology and concepts. This includes not just the common investment vehicles like stocks, bonds, real estate, and ETFs, but also concepts underpinning these vehicles like interest, dividends, and capital gains.
If they’re an older teen, you can even get them to read deeper material like stock analysis with HALO Technologies and the properties that make a good investment.
You can make them experience the subject first-hand by allocating a portion of their money into an investment vehicle, like a time deposit. Over time, they can see the fund grow, which can help them understand the importance of this financial activity.
- Make Learning Fun
A lot of financial terms and concepts can fly over your teen’s head. They don’t really care about government bonds or chart movements. However, you can get creative with your education process and make financial concepts more entertaining.
One way you can do that is by playing financial board games. Games like Monopoly teach your kid about risk management and negotiation. It also shows them how luck plays a role in the overall process, as well as ways they can capitalise on specific situations.
Another way to make financial learning fun is by hosting a friendly competition for the entire household. You can, for instance, reward the teen who saves the most from their allowance for the week.
Alternatively, you can also formulate games that specialise in different financial concepts, like investing and debt leveraging.
In any case, game-ifying the learning process can be a great motivator for your kid to get into financial literacy. This, in turn, can enhance their knowledge and make them more financially proficient people later in life.
- Make Them Work For Their Goals
If life guaranteed an endless flow of money, we wouldn’t need to learn about financial literacy. However, reality isn’t like that.
Everyone needs to work hard for them to survive and thrive, and teaching your child this reality early on is crucial to ensuring that they don’t get surprised later.
As early as possible, help them develop a strong work ethic. If they have a goal they’re working towards, help them achieve it but have them do something in return.
For instance, you can pay them to do chores around the house. Alternatively, you can encourage them to sell secondhand items online or through a garage sale.
By giving them this exposure, you’re providing them with a valuable lesson on what it means to be responsible. In turn, this can keep them grounded on the reality of society and how we need to work to get what we want.
- Set a Good Example
Last but not the least, make sure that you demonstrate positive financial habits in front of your child or teen.
At a young age, kids tend to emulate the people closest to them. And if they see you upholding bad habits, then they’ll naturally gravitate to follow suit, even if you tell them otherwise.
Sure, educating them and having ongoing discussions about financial literacy is critical to cementing their knowledge on the matter.
Teens are shaped by their environment too, so as much as possible, be prudent with your finances. They’ll see that you care about your finances and will likely do the same to secure their financial future.
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