5 things your teen should know about money

For a teen in an average Indian household, financial literacy is limited to the monthly allowance he gets, how he spends it, and where he can order food online. Typically, parents are not too keen to talk money with their kids, fearing that either the child will reveal the family’s finances to friends, or will not understand and be overwhelmed by the subject. It’s a perception that needs a long overdue correction. Children today are not only digitally and financially savvy, but also quick learners. Instead of simply handing them the money to purchase things, parents need to instill money values that will stand the kids in good stead when they become adults and start handling their own finances. Here are some of the things that the teens need to know:

1. How the household budget works

While you don’t have to offer your teen a spreadsheet, it is worth spending time to explain the basics of budgeting. Show how expenses need to be less than the income to achieve goals. List out the various exenses, including rent, bills, groceries, entertainment and all of the teen’s demands. Create simple exercises, where he needs to save a specific amount by juggling income and expenses. Ask him to set goals to be achieved with his monthly allowance over a specified period of time. This will not only hone his budgeting skills, but also make him more empathetic towards the need to save and keep a leash on his demands.

2. Basics of banking

While explaining the basic functioning of a bank, allow him to perform simple functions like ATM withdrawals, depositing money, operating lockers, as also Internet banking, along with you. Also explain simple terms like interest rate, credit, debit, loan, etc. Once he is familiar with the terms and functioning, bank-related tasks will not seem alien or confusing when he is ready to operate an account on turning 18.

3. Power of saving & compounding

This may be one of the most important lessons you will teach your teen as it will set the course for him to acquire the saving habit and help achieve his goals. Put his money in simple instruments, say, a bank savings account, recurring account and fixed deposit, and ask him to keep some cash at home in the piggy bank. Show him over the course of a year how his money has grown. Explain to him the concept of compounding and watch him want to grow his money by saving his allowance.

4. Effort of earning

For the teen to appreciate how hard you work to earn a living, make him work for the things he needs. Link some of his demands to chores or responsibilities that he needs to fulfil in order to earn what he wants. For instance, if he wants a bike or a gadget, link its payment to an errand, such as teaching his younger sibling on a sustained basis, or taking the responsibility of dropping and picking up a sibling to the tuition class.

5 Pitfalls of debt

Allow your teen to buy a gadget or accessory that he desperately wants by taking a loan from you. Set the terms of repayment, such as the interest rate to be charged and the time in which he needs to return the money. Charge for late payment and defaults. This simple exercise will make him wary of taking unnecessary loans or spend his credit card recklessly as an adult.