Personal Finance Advice for Teens
How much did you learn about personal finance in high school? According to a study by Next Gen Personal Finance, less than half of U.S. public high school students will take a personal finance course.
And those teens who’ve taken a finance course may have knowledge gaps about real-world applications. This makes it important for parents to continue the financial literacy lessons at home.
Start With the Basics
If you’re starting from scratch, our article, The Smart Way to Teach Your Kids About Money, provides pointers on how to create a foundation of knowledge for your kids. It includes tips you can use to teach your children about saving, budgeting, and borrowing.
After you’ve laid the groundwork, it’s time to put the lessons into practice with a checking account.
Not sure which account to get your teen? There are various checking accounts specifically designed for teens that include oversight control for parents. For example, Axos Bank First Checking, is made for ages 13-17 and provides several controls to ease your child into checking.
Teach Your Teen About Compound Interest
You can help your teen maximize their money by teaching about the value of earning compound interest.
Chessboard Story
The concept of compound interest is not an easy one to understand, even for the savviest teens – and adults! As a friendly reminder, this is the concept of earning interest on interest.
There’s a folk legend about the origin of chess that does a great job of explaining compound interest. In the story, the inventor of chess decides to sell his game to a king. As a form of payment, the inventor asks for a grain of rice, doubled for each square on the chessboard.
Thinking that he had gotten a great price for the game, the king agreed. However, the king soon learned the price was higher than he anticipated, because the amount of rice compounded for each square. Eventually, the number of grains of rice got into the trillions.
Apply the Concept
Once your teenager understands how they can make money on interest plus the original amount of the deposit, you can illustrate this concept in real life.
One of the best ways to learn is by doing. Encourage your teen to get their feet wet with an interest-bearing checking account, like First Checking.
You and your teen can calculate the APY they might earn by using an APY calculator. Interactive tools and calculators can help explain abstract concepts like compound interest so your teen understands how interest works and ways they can apply it to their savings.
How to Build Credit as a Teenager
As your teenager gets older, they may be considering borrowing money to go to college. This is a great time to talk to them about credit scores and how to build credit as a teen.
Understanding Credit Score Factors
Before building credit, your teen should first understand what affects their credit score. Simply put, a credit score is most heavily impacted by payment history, credit usage percentage, and derogatory marks.
Building Credit
After explaining how decisions can affect credit, you may want to help your teen build credit. One way to do this is by adding them as an authorized user on your credit card. This will give them a head start on building credit.
Ben Arbov, the founder & CEO of Greatest Gift, a financial gifting platform, recommends that parents and guardians “Make sure the authorized user is reported to the credit bureaus, as not all credit card companies report them by default,” when adding teens as authorized users on credit cards.
Another way to teach about credit is to talk to your child about monitoring their credit. Through AnnualCreditReport.com, they’re able to get periodic free credit reports to see their credit activity.
You can also discuss credit scores but know that a score won’t be assigned until they are at least 18. At that time, they’ll be able to use a service like Axos Bank’s credit score monitoring to check their score for free.
Discuss How Emotions and Money Are Related
The relationship between emotions and money is an important personal finance topic to discuss with your teenager. Make sure to carve out time to talk about how emotions can affect finances and vice versa.
You can help prepare for the discussion with our article Are You Emotional About Money.
Emotional Spending Habits
When teens can recognize emotional spending habits, then they may be able to avoid them. Here are some important emotional spending habits to review:
- Impulse Purchases: Purchasing items with little to no logical decision making.
- Retail Therapy: Spending money to gain an emotional reaction.
- Jealous Purchases: Buying unneeded items to keep up with peers who have also purchased these items.
Avoiding Emotional Spending Habits
Tracking spending is a great way for teenagers and adults to identify and avoid emotional spending. With a full view of where their money is going, they can quickly recognize if they’re falling into emotional spending habits.
This is easiest to do with an account tracking tool that makes it easy to view spending habits across all accounts. One example is our Personal Finance Manager tool, which is free for everyone to use, even if you don’t have Axos Bank accounts. It also includes custom alerts, so teens know right away if their balances fall too low.
End of Class Note
One of the best gifts you can give your teen is the gift of knowledge. By providing them with a solid understanding of personal finance, they can enter adulthood with a sense of confidence. You can use additional money management articles and useful tools from Axos to teach your teen even more about personal finance.
