Teens need to learn managing money from the very beginning to start building the future they want. A future that is financially secured. Because no matter how much people say money can’t buy happiness, such types of philosophy won’t get you bread when you are broke.

From a young age, we all need to learn that we need money for mental satisfaction to fulfill our needs and desires. Money is what pays our bills, helps us buy things, and a lot more that contributes to making our future better. And for this special ingredient ‘money’, we need to work – not only hard but smart.

As a teen, they are likely aware that they need money. And more so think that they have their financial plans sorted. Though they are on the right track because having a plan is necessary, as adults we know it is not as easy as it sounds.

Hence as their parents and mentors, it is our responsibility to show them the way. Just like we teach our children to walk and eat when they’re younger, we must also teach them a few money management tips now that they are ready to lead their lives by themselves.

So, look forward to 10 essential money management tips – including savings, banking for teens, neobanks for teenagers and more, that you should teach your teen for a better financial future.

10 Essential Money Management Tips for Teenagers

  1. Separating Necessity from Luxury – Neobanks for Teens
  2. Spending 40% of the Earnings, Saving the Rest
  3. Tracking Expenses and Setting a Limit – Banking for Teenagers
  4. Investing Early
  5. Leveraging Compound Interest
  6. Understanding Net Pay vs Gross Pay
  7. Bad Debt vs Good Debt
  8. Building Credit Score
  9. Understand Big Loans
  10. Understanding the Power of Time

1. Separating Necessity from Luxury

As teens, there is a habit of buying more than required—an urge to get everything.

The smartphone that costs 1000 bucks might appear to be a necessity to them, and they may end up saving to get that one. But, at the same time, they can get away with a phone with half the price tag and still enjoy the same features.  

A smartphone is a need, a necessity but a smartphone that costs more than 1000 bucks is a luxury.

As a teen’s parent, you should help them understand that they don’t need the most costly clothes or the latest gizmo. They can buy the basics and make better use of the rest, for example saving it in Neo Bank For Teenagers for emergency or educational funds.

2. Spending 40% of the Earnings, Saving the Rest

It is the basic pattern of building your money, whether you are a teenager or an adult. We as adults might have a lot of liabilities that may prevent us from saving a significant part of our earnings, but as teenagers, when the liabilities of life are still not lurking over our heads, it is way easier to build savings.

We need to teach them the true value of money and how they can save cents from each dollar that comes their way. Because only when they save this certain portion of every dollar they earn, will they be comfortably able to avoid future debts, pay their bills and afford everything and anything they want.

3. Tracking Expenses and Setting a Limit

It is essential to track all the expenses to know how much one is spending each month when they start to earn. Further, it is vital to set a limit and not spend a penny more once that monthly limit is reached.

This can be easily conveyed to the teens through the example of data limit in our phones. It works in the same way – we set a data limit on our mobile phones simply so that we don’t use up all the data. There are opportunities of banking for teens available where they can set a limit for their expenses, and once they have reached that limit, they won’t be allowed to take out any more money or use the debit card to buy anything.

4. Investing Early

Just like savings, another important step is to start investing in mutual funds, low-yielding bonds, and stocks from a young age.

Investing in secured bonds and stocks with the lowest risks of sinking is a great way to build up money. Since it will be a long-term investment, the amount the teens invest will build up to a lump sum amount by the time they reach adulthood.

5. Leveraging Compound Interest

Teens might wonder why to invest in a bank where the interest is low while several other banks pay more interest in the short term.

But you need to show them the bigger picture. That when they invest their money for a longer term, they will start earning interest over the interest amount that is accumulating in their bank account.

Over a decade, they will see a 100x growth in their savings. Make them learn how time is a critical factor for building savings, so when they have time in their hands, they do leverage it.

6. Understanding Net Pay vs Gross Pay

There will soon come a time where your teens would be eagerly waiting for their first paycheck from their very first job. But that excitement can turn into disappointment real fast, here’s why.

When most teens calculate what their paycheck would be, they multiply the hours worked by their hourly rate. But what teens don’t realize is that some withholdings and deductions are taken away from their hard earned money.

If you want to keep your child from being disappointed, expect and know better, let them understand the concepts of gross and net income and the difference between the two.

7. Bad Debts vs Good Debts

While all liabilities need to be paid on time, there are some types of debt that can help one move forward while the other might hold you back. Which is why your teen must have the wisdom to identify the two and differentiate one from the other.

It can be easily, in simple terms explained to them: Good debt is the money you loan to reach your goals, while bad debts are the amount you loan to fulfill your luxury.

8. Building Credit Score

Coach your teens to start with small loans that can be quickly repaid. With time, such loans can build an excellent credit score which will further help your teen get any loan they want at low interest.

Having a good credit score will aid your teen to get more approval on their future loans and rental agreements when they move out to start living their own lives independently.

9. Understanding Big Loans

Before taking big loans, it is important for the younger ones to understand that it takes time to pay off. Instances could be that before even getting their first paycheck, your teen may be buried under a heap of loans.

Hence it is extremely essential for the teens before they loan money for buying a car or paying for college, etc to understand well and calculate how long it will actually take them to pay it off.

10. Understanding the Power of Time

Time is the main & major factor when it comes to money, and your teen must know so. From putting a little amount in savings every day to investing in long-term investments, it is only ‘time’ that will help them build a financially secure future because as they’re starting young, they have great liberty to start slowly and move steadily.

Takeaway Notes

From a very young age, you should talk to your children about money and help them grasp its importance, power and smarter usage. You need to coach them to leverage the resource for their benefits and teach them how it can help them to grow their savings.

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