10 Essential Money Lessons for Teens

When talking to teenagers about money, you'll quickly learn that many believe they are experts on the topic. As teens, they understand you go to work to earn money and that it takes money to pay bills and buy things. Most teens also know that saving money and donating to causes is essential. If your teen has figured all of that out, they are on the right track to managing their money. As children mature and start making their own money and spending decisions, the stakes get higher. That's where we have to take our job as parents seriously. While your teen may think they know it all, becoming financially literate is a process. Here are ten essential money lessons every teen should learn. The sooner they understand this information, the greater their chances of becoming financially healthy adults. 1. Needs vs. Wants. - Your teen may think they need the latest smartphone, video game, or even a car. And be prepared for a well thought out rationale if you question why they think it's a need. While your teen may have some good reasons to call something a need, make sure you are firm when discussing the difference between needs and wants. •A smartphone might be a need, but the latest smartphone is a want. •Without a new video game, they might miss playing with their friends online, but it's still a want, not a need. •It might help everyone if your teen can drive to school or work, but in many cases, an extra car is wanted more than it's needed. We don't want to send a message to our children that their wants don't matter, though. If they budget for their needs and have an emergency fund in case something unexpected happens, they can set up savings accounts for their wants. Practicing delayed gratification by resisting the urge to buy things on a whim will help prevent them from going into debt in the future. 2. Spend Less Than You Earn, Save The Difference. - Your teen understands negative numbers from math class, so it shouldn't be hard to transfer that to money. When you consistently spend more than you make, you will end up with a negative account balance. We need to teach our teens that if you spend every dollar coming in, you'll never get ahead. When you spend less than you earn, you can pay your bills, avoid credit card debt, save for the things you want, and even invest for your future. Your teen's goal should be to grow the gap. The bigger the difference between what they earn and what they spend, the faster their savings will grow. 3. Track Expenses and Start a Budget. - Whether your teen has a job, gets an allowance or has money from gifts, they should track what they spend and set up a simple budget. Most teens are surprised to see where their money goes when they track all of their spending. In the budget, your teen should consider setting aside money to save, spend, and give. This helps teens put cash in the bank while still allowing them to spend responsibly. By creating a giving fund, they can donate to important causes without worrying about running out of money. 4. Save, But Start Investing Early. - When your teen starts budgeting and works to grow the gap between earning and spending, they'll have more money to save. Consider introducing your teen to high-interest savings accounts for funding short-term financial goals. While the interest they earn on small account balances might not be significant, teach them how .01% and 2.0% annual percent yield (APY) savings accounts compare. For example, you'll earn $20 in interest if you have a balance of $1,000 in a 2.0% APY savings account for a year. The same $1,000 will only earn $.10 after a year in a .01% APY savings account. Teach your teen that you always want your money making more money! Once teens have accumulated some savings, they should consider investing too. The longer their money is invested, the more wealth they will build over time - even if they deposit tiny amounts. Introduce your teen to simple investing terms and help them open an investment account. At this point, you want them to use the "set it and forget it" investing strategy knowing that this is money for long-term goals in the very distant future. 5. Use the Power of Compound Interest. - Your teen now understands why they should use a high-interest savings account. Now it's time to show them the power of compound interest. When they invest money, and it starts making money, they'll keep earning interest on top of interest. If they leave the money invested over several decades, they'll see the "magic" of compounding - even if they never add more money to the initial investment. Time is the critical factor in building wealth through compounding. The earlier your child starts investing money, the more they'll earn in the long run. If they don't believe you, your teen can try out different examples on a compounding interest calculator to see how different initial investments, interest rates, compounding frequency, and years invested affect how much your money will grow over time. 6. Understand Gross vs. Net Pay. - When your teen gets a job, they'll count the days until their first paycheck. But the excitement of getting paid can turn to disappointment real fast. When your teen calculates what their paycheck should be, they'll likely multiply the hours worked by their hourly rate. But kids don't realize, or they forget there are withholdings and deductions taken from earnings. If you want to prevent your teen from being shocked by their first paycheck, make sure they understand gross vs. net pay. Money will be withheld for federal income tax, Social Security tax, Medicare tax, and any applicable state or local income taxes. There may also be deductions for any retirement plans your teen may be eligible for through their employer. Your teen should know they may receive a refund after filing a tax return if too much money has been withheld from their paychecks during the year. But they should get used to planning their budget on their net pay instead of the higher gross pay they anticipated. 7. Good Debt vs. Bad Debt. - Teens need to learn about different kinds of debt. While all liabilities need to be repaid as a part of every budget, one type of debt can move you forward while the other holds you back. "Good debt" is money you borrow that helps you reach your goals. Student loans can be considered good debt if they help your child earn a degree leading to employment. But the amount of good debt someone takes on can also be a real problem. The average student loan debt per person in 2019 is over $30,000. Teens should consider all of their options before taking out massive student loans to fund their education. Is community college for two years an option? What about living at home or graduating from college in three years instead of four? You want them to avoid "bad debt" at all costs. Bad debt usually carries high-interest rates and is often used to purchase our wants instead of needs. Swiping a credit card too often can put teens in a cycle of debt that's hard to recover from. 8. Your Credit Score Matters. - As young adults age, they may be able to open up credit cards. Even with small lines of credit, your teen can make mistakes such as making late payments, keeping high balances or making minimum payments. This can prevent them from paying off their debt and negatively impact their credit score. A cycle of financial problems results when credit card debt grows. Teens need to understand that building a high credit score can save them money on costs, including car insurance or cell phone contracts. When your teen is ready to leave the nest for their own apartment, having a high credit score can increase their chances of approval on rental and loan agreements and may save them money on utilities. Teach your teen that their credit score can be damaged quickly by irresponsibility. Consider talking to your kids about reviewing their credit report each year to make sure no one has opened an account in their name. Tell your teen to watch out for sites that want you to pay money to get your credit report. Everyone has access to a free copy of their credit report from each of the three credit bureau's once a year from annualcreditreport.com 9. Big Loans Can Really Affect Your Life. - Teens can be faced with adult-level decisions when it comes to taking out large sums of money for things like cars and college. Before they earn a steady paycheck, they can be tens of thousands of dollars in debt without understanding how long or difficult it will be to pay the money back. A car might only cost $10K to them - or a few hundred dollars a month. But young adults forget that's only one expense they'll have as they become more independent. When teens consider college loans, they're thinking about their first "real" job and how big their paychecks will be. They may not realize they could be paying back loans for decades - even if they have good jobs. Teens considering big loans need to use student loan calculators and look at loan amounts, terms, and interest rates to better understand the debt they want to take on. If they've already tracked expenses and started using a budget, have them project all of the expenses they could have as a young adult and compare it to their net pay from a career that interests them. When you add in a student loan payment, the idea of taking out a big loan may not seem like such a smart decision. 10. You Can Be an Entrepreneur Without Taking on Much Debt. - Some teens are natural entrepreneurs and have terrific ideas for starting small businesses. But they may spend time online trying to figure out how to grow their business - including spending much money to get their business started. You don't want to dampen your child's enthusiasm by only talking about money. But you also don't want your teen (or yourself) to take on too much debt before you know that they'll stick with the business or if it will even be profitable. Help your teen figure out ways to market their business, get the equipment they need and find customers for as little money as possible. This will also help them make money faster because they won't have a debt to pay off. If their business takes off, they can put their profits back into their company to help it grow. Or they can find other low-cost options to help scale their business. Helping Your Teens Build A Bright Financial Future As mentioned above, teaching your teens about money is a process. Some of the lessons work well with younger teens, while others won't be appropriate until after they get their first job or graduate from high school. The more you talk openly about money in your household, the easier it will be to talk to your teens about their financial future. Luckily, there are plenty of great resources available if you aren't confident with money yourself, or if your teen wants to learn more on their own, or you want to learn about money as a family. We all love our teens and want to help them grow up and become financially independent adults. One of the most important things you can do as a parent to help them meet those goals is teaching them valuable lessons about money. Source: Vicki Cook and Amy Blacklock, Women Who Money, 10/28/19.

How to Age Gracefully

You are convinced it will never happen to you, but the truth is that we all age. Because of the fall of man in the Garden, our earthly bodies are no longer made to last forever (Genesis 3:19, 2 Corinthians 4:16). Though September was Healthy Aging Month, I imagine aging does not sound like something to get excited about. Around the world, we work hard to fight the signs of aging with lotions, creams, and pills. But what if we thought about aging a little differently? Instead of thinking of it as something to prevent (which we really can’t since we can’t stop time), think of it as an opportunity. We have the opportunity to age healthfully. Healthy Aging Month was instituted to encourage adults to take stock of their physical, social, mental, and financial wellness. You wouldn’t drive your car its entire life without getting maintenance check-ups, so treat your body better than your car and maintain it well. 1) Physical Health Our physical health is likely the aspect of aging that we consider the most. This is with good reason since we can see changes in our physical features and feel changes in our body. Early adulthood, ages 20-40, is when our bodies reach the peak of their physical abilities. If you’re in this age range, these years are an opportunity to maximize your muscle strength, reaction time, sensory abilities, and cardiac function. As we continue into middle adulthood, ages 40-65, aging begins to speed up and we likely notice more changes in vision, hearing, and reproductive capabilities. Instead of just sitting back thinking it is all part of the aging process we have to accept, take charge of your physical health. It’s estimated that physical functioning peaks around age 30. Somewhere in our 30s we begin to lose muscle mass and function. Sedentary individuals can lose as much as 5% of their muscle mass each decade! However, it can be maintained through regular exercise, specifically strength or resistance training. An added bonus of resistance training is that it also strengthens our bones as it maintains or increases muscle strength, preventing osteoporosis. Another part of maintaining our physical health is completing the recommended health screenings for your age group. Check with your doctors for specific recommendations based on your medical history. Regular check-ups and health screenings are an important part of physical health. Early identification of health problems makes them easier to treat and more likely to resolve or cure. 2) Social Inevitably, as we age, our social circles will change. These changes are another opportunity to challenge typical aging norms and learn about new cultures, different generations, and develop new friendships. Aging can sometimes feel lonely, but by continuing to make new friends loneliness can be mitigated. To widen your social circles and meet new potential friends, try a new hobby, volunteer at a local school, or take a class at a nearby college. Expand your social network and connect with younger generations. Not only will this help you keep more in touch with current trends and technology, it will also help you to feel younger even if only at heart. 3) Mental Cognitively speaking, our development continues into middle adulthood. It is then that wisdom and expertise begin to develop. While cognitive processing speeds may slow down later in adulthood, wisdom and experience-based problem solving continue to increase. Maintain mental wellness by ditching negativity for a positive outlook (Philippians 4:8). Look to God for encouragement in everything you do. Start each day with a positive prayer filled with hope. Surround yourself with joyful, positive friends and you will feel happier, too. Research shows that smiling, even a fake smile, can boost your mood. When you catch your reflection in the mirror or a window, give yourself a smile and you’ll be surprised how much it can lift your spirits. Smile at others too; you just might make their day! 4) Financial Planning for the financial future can be difficult when we are young or budgets are tight, but it is a critical part of healthy aging. As previously discussed, aging brings physical changes and often these changes may require costly procedures or medication to manage. A few ways to maintain financial health include: •Creating a budget – determine our financial needs versus wants. •Set up automatic savings – investment account or savings account. •Save for retirement – participate in employer-based plan if offered. •Create shopping lists – and stick to them. •Set up separate accounts for different goals – keep emergency funds in a separate account from your vacation fund so you’re not tempted to dip into emergency money. Conclusion There are basically two types of aging: primary and secondary. Primary aging is largely uncontrollable and includes things such as cellular changes. Secondary aging includes factors that we do have control over including lifestyle factors such as nutrition and physical activity. Recent research indicates that adopting healthy lifestyle factors increases life expectancy by as many as 12 and 14 years for men and women, respectively. If you’re interested in prolonging your life expectancy, try adopting some or all of the following habits: •Don’t smoke. •Maintain a healthy weight with your body mass index between 18.5 and 24.9. •Participate in 30 minutes of moderate to vigorous physical activity most days. •Eat a high-quality, nutrient-dense diet. •If alcohol is consumed, do so in moderation. Adopting these habits can not only add more years to your life but help ensure the extra years are lived in good health. Believe it or not, there are positive aspects of aging. With age often comes retirement. During retirement, we can do things we never had time for during our working years. We can read books, take trips, finish projects, or simply take time to relax. Older adulthood may include grandchildren, providing the opportunity to educate them and spoil them. There is freedom in retirement that may be disorienting initially, but can be an opportunity to be self-directed in your daily life. Take time today and do something that your future self will thank you for such as go for a walk, eat a healthy meal, save a dollar or two, or place a phone call to a friend or family member. Source: Laura Bollinger, RDN; 10/5/19.