Explaining the different types of bank accounts to your child is crucial. Start by opening a savings account with them so they can understand the importance of saving. When they have a job, you could also work with them to open a checking account. This will help teach them the process of saving, spending money, using a debit card and writing checks.
Even though your teen won’t have a credit card just yet, it’s important to teach them about credit cards and how they work. Explain the limits that are set, paying your minimum each month and how that will affect their credit score. This will help them be prepared for when they do get their first card.
Teach your teen that debt is no joke. There will be car payments, groceries, entertainment purchases, credit card bills, student loans and so on. Making sure they know not to bite off more than they can afford is extremely important. This will help them understand all the bills they may have in the future.
Start explaining what a credit score is and how that will help them get lower interest rates in the future. This can also tie into the credit card conversation. Understanding the basics of a credit score now will help keep them financially healthy in the future.
Understanding needs vs wants is a great life lesson. Start your teen off with budgeting by having them help with the grocery list. Tell them the rough prices of what things cost, have them make a list and keep it under a certain amount. This will help teach them how to budget, so they can apply it to other things in their life down the road. You can also use our Personal Financial Management tool to show them how to create budgets.
These basic items are critical for teens to understand. Looking back, you may realize you didn’t quite know all these things when you were a teen. This is why we wanted to share this information, as we believe it’s a good thing to get ahead in the financial world with your child, so they are prepared.