As parents, we all want the best for our children. We want them to have fulfilling lives and be independent. While money isn't everything, it is an essential aspect of a happy and organized life. That's why teaching teens how to manage money effectively is so important. Their ability to do so will impact their adult life, including managing careers, major purchases like buying a house, and raising a family.
According to a survey conducted by the National Financial Educators Council, only 17% of high school students in the United States are required to take a personal finance course. This lack of financial education can have a significant impact on young adults as they navigate the financial responsibilities of adulthood. Therefore, as parents, it's essential to teach our teens about money management, including savings and investing.
Summer jobs provide a great opportunity for teens to earn money and learn about financial responsibility. It's a perfect time for parents to start a conversation with their teens about financial literacy. Encourage them to set savings goals and make a plan for how they will achieve them. Additionally, teach them about the different types of investments available and how to get started with investing. With the right knowledge and guidance, they can start building a solid financial foundation for themselves at a young age.
To further help parents teach their teens about investing, Jessica Perrone, Founder of Her Financial IQ, hosted a special episode of "Her Money & Investing Show" where she discusses "Teaching Your Teen To Make Their Money Work". The episode provides valuable tips and strategies for helping your teen get started with investing this summer and explains why financial literacy is so important for young adults.
"Investing in your teen's financial literacy is an investment in their future success." - Jessica Perrone.
According to a study by the National Endowment for Financial Education, young adults who receive financial education are more likely to save money, have higher credit scores, and fewer problems with debt. Therefore, it's essential to teach our teens about financial literacy, including budgeting, saving, and investing.
The "Her Money & Investing Show" simplifies money and finance concepts for women with advanced to little or no investing knowledge. It is an informative and engaging resource that is a must-watch for parents who want to help their teens cultivate a strong investing identity.
In the latest episode, Jessica Perrone shares tips to help your teen build a solid financial foundation:
Saving rules
According to Jessica Perrone, a basic rule for dividing up after-tax income is to allocate 50% to needs, 30% to wants, and 20% to savings. However, if your teen lives at home without expenses, Jessica Perrone recommends encouraging them to save 50% of their earnings.
Investigate high-yield savings accounts
Encourage your teen to research high-yield savings accounts that offer competitive interest rates. They can investigate the current savings account yield and shop on bankrate.com to compare rates and find the best option. This can help them maximize their savings and earn more on their money.
Talk about saving for life stages
It's important for teens to understand that saving is not just about the present but also about preparing for future life stages. For example, if they plan to buy a car in the near future, they should start saving for it now.
"Encouraging your teen to save early and often can help them develop good financial habits that will benefit them throughout their lifetime." -Jessica Perrone
Listen to financial radio/TV
I encourage you to listen to financial radio or have financial news on in the background in the kitchen or the car when your teen is around. Even if they are not actively engaged, they can still benefit from learning by osmosis or casual conversation that comes up from passively listening. For instance, if they hear you discussing the stock market or a company's earnings report, they may ask questions and gain a better understanding of investing and personal finance concepts. This can spark a conversation and lead to a deeper understanding of financial literacy.
Investing summer earnings
Encourage your teen to consider investing their summer taxable earnings in a tax-advantaged account like an IRA. They can open an account with a financial advisor, robo-advisor, or retail brokerage.
Open a brokerage account
If your teen doesn't have taxable income, they can still open a brokerage account for self-directed investing in stocks, ETFs, and mutual funds. They can also consider opening a robo-advisor account for managed investing or open an account with your financial advisor.
Emphasize the long-term benefits
Investing is a long-term game, and it's important for teens to understand that they may not see immediate returns on their investments. Emphasize the long-term benefits of investing, such as compound interest and the potential for significant returns over time.
"By investing summer earnings, teens can start building a strong financial foundation for their future and turn their summer job into a long-term investment in themselves." - Jessica Perrone
Go on a field trip to a financial advisor's office
Consider taking your teen on a field trip to a financial advisor's office, or if you don't have one, to a friend or relative who is a financial advisor. This can help demystify the investing process and give your teen a better understanding of how financial advisors can help.
Talk about 529 college savings plans
Whether you have a 529 plan for your teen or not, it's helpful to discuss 529 college savings plans with them if they plan to attend college.
If you have a 529 plan for your teen, you can:
a) Investigate with your teen what their 529 is invested in and b) what costs it will be used to cover and what it won't. This can help them understand the investment options available to them and how they can use their college savings.
If you don't have a 529 plan for your teen, you can:
a) Consider researching with your teen and choosing the investment options together. This can help them understand the different investment options available and make informed decisions about their college savings.
In conclusion, teaching our teens about financial literacy is essential for their future success. Summer jobs provide an excellent opportunity for teens to learn about financial responsibility, including savings and investing. The "Her Money & Investing Show" episode on "Teaching Your Teen To Make Their Money Work" provides valuable tips and strategies for parents to help their teens start investing this summer. Don't miss out on this great opportunity to learn how you can help your teen build a solid financial foundation for themselves. Head over to the Her Financial IQ Facebook page to access the recording.
Take advantage of this insightful discussion! Check out the video here:
https://www.youtube.com/watch?v=Ec7rHCpHc6c&ab_channel=HerFinIQ
I hope this helps! Let me know if you have any further questions.
Sources mentioned in this blog post:
1. National Financial Educators Council. (2018). Financial Education in America: State-by-State Grades for High Schools. Retrieved from https://www.financialeducatorscouncil.org/state-financial-education-grades/
2. National Endowment for Financial Education. (2019). The Financial Capability of Young Adults – A Generational View. Retrieved from https://www.nefe.org/Portals/0/WhatWeProvide/PrimaryResearch/PDF/2019/NEFE-Young-Adult-Financial-Capability-Report.pdf
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