While high school students may know around the newest gadget and which social media site is hotter than hot, they are still learning about money.
Teens insert nearly $80 billion into our countries economy according to Piper Jaffray, an investment banker that studies the spending habits of America’s youth. While high schoolers have learned to be budget-conscious, deal-seeking, shopping machines as a result of their coming to age in the Great Recession of 2008, they still are a force to be reckoned with in the retail world. Companies are more inclined lure in teenagers due to the life-long loyalty this demographic offers.
[Read: Frequency Of Credit Card Use]
Thankfully, almost 85% of teens are still looking to their parents for guidance in money matters. Unfortunately, the guidance we offer is lacking. Twenty-five percent Generation Z (15 – 24-year-olds) do not know the difference between a credit card and a debit card. We need to help by;
- Talking to them about money
- Getting them a prepaid card
- Teaching them how to budget
- Getting them a checking account
- Getting them a credit card
- Setting a good example
We know the impact that credit history, and debt, have on a young adult’s ability to rent an apartment, get a job, and interest rate they get on a car loan. So we’ve put together some guidelines for helping teens get credit and learn about money. Whether you follow the no debt stance of Dave Ramsey or want them to own credit cards (and not vice versa) these steps will help your Gen Z-er start life on a good foot.
Giving Your Teen Credit
Talk to your teens about money
You will never be able to give your teens credit if they don’t know the first thing about finances. Don’t be the 33% of parents that don’t discuss finances with their children. They may not be ready for the pros and cons of 401(ks) and roth IRA’s but they are ready to learn about money. If you don’t feel comfortable answering all of your child’s questions, there are plenty of sources online, including MyCreditUnion.gov’s interactive games. How ever you teach your teens, they are looking to you for guidance.
Get a prepaid card
You’ve talked to your teens about money and it’s time for them to start testing the waters. A prepaid card is an excellent dry run, it won’t give your teens credit, but it will get them used to a spending limit. If you don’t want the hassle of user fees, introduce the envelope system to your teens. Whether they practice with cash or card they’ll learn; when you’re out of money, you’re out of money.
Introduce the budget
Teach your children a new B-word, budget. They’ll quickly learn that if they don’t track their expenses then they’ll continually run out of funds. If you’ve ever heard of the giving a man a fish to feed him for a day and feeding him for life. If your teen learns how to budget you aren’t just giving your teen credit, your giving your future 30-something credit. Nothing destroys credit faster than late and missed payments. Nothing prevents late and missed payments like a good budget. This tool can also be used to help your Gen Z-er to save up for particularly large purchases, like their outfit for the next school formal or prom tickets.
Open a checking account
You can find “minor” and “student” checking accounts all over the country, if your bank doesn’t offer one the bank or credit union down the street probably does. Once your teen has shown they won’t spend all of their money (see step 2) and that they are able to track and even anticipate expenses and income (see step 3) it’s time to give them more access to the cash. You’ll have two options, co-signing or giving your teenager free reign over their checking account. If you co-sign it’s easier for you to keep track of the expenses, and you’ll be the one paying if they overdraft their account.
Give your teen credit, by giving them a credit card
If you want your children to shun credit cards, skip to step 6. If you want your kids to learn about responsible credit card handling read on. Teenagers with income may be able to get their own card, if they don’t have an outside job you’ll have to co-sign. This will result in your credit card habits affecting their credit score as much as their habits will affect yours. If your teen still has trouble staying on top of his spending, or you have a negative credit habits, wait until later.
[Read: Your Credit Score Number]
Set a good example
Children do what they see more than what they’re told. Give your teen credit, by giving them insight into your financial habits.