Developing strong financial practices at a young age is essential. In today’s world of credit cards, the fluctuating economic situation and rising debt, teens must have the knowledge they need to be financially successful throughout life. Even before their first job, teens can learn to manage their money successfully, a practice that will serve them for decades to come. Below are 7 things teens need to know about accounting and healthy financial principles.
- Basic Accounting Lingo
Unfortunately, schools do not cover personal finances to the level that makes an impact on students. Encourage them to learn and apply the following terms:
Expenses
Revenue
Gains
Losses
Interest
Assets
Liabilities
Balance Sheet
Cash Flow
- Balancing a Checkbook/Bank Account
So few people actually write checks any more. But it is still necessary to do a monthly balancing of bank accounts. Download a balancing worksheet that your teen can use to balance their accounts, paying attention to deposits, withdrawals, monthly fees and interest.
- Credit
The number of adults in financial jeopardy due to credit card debt is staggering. It is important for teens to understand the proper use of credit, how to leverage credit, benefits of timely payments and the responsibility that goes along with credit. Proper uses can include purchases that can be paid off in 3 months and emergency situations.
- Savings
Savings accounts are great for individuals that have their eyes set on a future goal. For a teen that may be college, a Spring Break trip, a new car – whatever they desire. Support their savings activities and encourage them to pay themselves first by depositing funds into an interest bearing savings account.
- Investments
It is never too early to start discussing investment opportunities and the difference between short-term high-risk investments and long-term low-risk investments and the place that each holds in personal finances.
- Starting a Small Business
Perhaps your teen has the acumen and desire to start a small business. Many of today’s multi-millionaires started as teens; encourage them to do their research not just for the product, but also for the best business structure for their long-term goals. Encouraging the entrepreneurial spirit will only serve them well into the future.
- Taxes
Two things in life you can count on happening – death and taxes. It is vital that your teens learn about income taxes and sales taxes. When you do your annual federal and state taxes, have your teen fill out the tax forms. Even if you use an accountant for filing your personal taxes include your teen in the process. Give them a checklist of the receipts and other information they need to file. Prior to your teen getting a job, you can draft up a W-2 or 1099 of the money they have received over the year from odd jobs, gifts and their allowance.
Creative Ways to Encourage Smart Financial Practices
You can encourage your teen’s financial acumen in fun and creative ways. Start by working with your teen on a monthly budget. The budget should include expenses, money for entertainment and savings. Act as their bank. When they save money, give them interest on their money. If they receive an allowance or have a job, encourage them to treat the money as they would if they were adults – taxes, deductions and ways to save, even on a limited budget. Have frank discussions about college financing and a look at all of the costs associated with college that goes above and beyond tuition. Give your teen practical experience by encouraging them to help you budget an upcoming family trip, new loan financing or the monthly food budget. These and other ways can give your teen the jumpstart they need for good financial health to last a lifetime.
