If you’re living with a teenager, you probably already know they don’t really get money. Sure, they know how to use it to buy clothes, but when mum and dad seem to be an eternal fountain of wealth, it’s harder for them to know where that money comes from. When they get their first job, it’s a good idea for them to have some essential money management knowledge under their belt. This will prevent from making money mistakes from day one.
The people at iThink Finance, know just how important it is for kids to have a healthy understanding of money and just how dangerous it can be to start earning without having a healthy respect for money. In 2018, 8.3 million people in the UK were in bad debt. They had lived beyond their means and were unable to pay for their regular household expenses. Many of those people have poor money management skills.
Some kids get a good financial start and others don’t. How much money you have has no bearing on how well-off your child will be financially in the future. Ultimately, it really comes down to how your child understands money and if he/she has a healthy respect for spending and saving. As a parent, you’re probably worried about how well your child will cope with earning money for the first time. It’s natural for teenagers to want to blow their first pay cheque. But with the right guidance from you, you can stop them from blowing the rest of them!
Follow these things you need to teach your kids before they get their first job to set them on the right track.
Ditch the allowance and pay a “commission”.
Kids that get allowances to do what they want with can develop an unhealthy understanding of how money and finances really work. Instead of giving them an allowance each month, recommend commissions for different chores around the home instead. Write up a list of chores and say how much you would pay them. Draw up earning charts so that each commission can be confirmed and authorised by you. Pay the commissions over on a weekly or monthly basis with a “pay slip” included. You can even work out a way to teach about deductions by deducting fees for poor behaviour, chores completed sloppily, bad manners or staying out late!
The lesson: Money isn’t dished out – it’s earned.
Get them a bank account.
Pay whatever you give them into their own bank account. This is an important part of the process. It’s the very first opportunity for them to learn about the joys of saving. Every commission/allowance paid over to your child should go straight into the bank account. Spend some time drawing up a budget with your child, including expenses such as magazine subscriptions and savings. Ensure that they put aside money each month for savings and insist that it is treated as a fixed monthly expense. They may not like it now, but they’ll thank you in the future.
The lesson: Savings are vitally important and fees are a fact of life.
Start saving for retirement.
Children and teens don’t grasp the fact that one day they will get old and need financial support. Having access to a good retirement fund is vitally important and it is never too early to start saving. Make sure that this figure appears on their budget. To make it seem like less of a punishment to them, offer to pay a portion of the retirement fee up until they reach a certain age (most parents choose 18 or 21). A great option for kids is the Virgin Children’s Pension package. This is popular as the state tops up payments made by 25% and your child can access the funds on their 55th Birthday. Stress that saving for retirement is essential for their future happiness and security.
The lesson: saving for retirement is vitally important.
These are just three of the many lessons you can teach your child about money before they get their first job. Having this understanding of money and a good starting point financially is invaluable to any child. Help your child to make a great financial start by preparing them for the money challenges that they will encounter throughout their lives.