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Personal finance guide for teenagers

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Today, you might already be working hard to achieve your financial goals as laid down in your Financial plan but a high credit card spending by your teen can sideline all your efforts in no time. Currently, school curriculum hardly addresses the need to educate personal finance to your teen and their unawareness can jeopardize your own financial scenario. In the absence of formal education, parents should take charge to teach their teens how to responsibly manage their finances now and in the future.

Step 1. Save, no matter how small – Guide your teen to save money out of his/her pocket money or money received through gifts. The idea is to inculcate the habit of saving in them from a tender age. Whether it’s a little or a lot, open a low-fee savings account with a bank so that you can personally monitor their savings.

Nowadays, banks are offering savings account for your children with features like net banking and ATM facility. They also have security features to prevent overspending and misuse of the account, so go ahead and get one for your child.

Step 2. Make them spend within a Budget – Based on the average cost of clothing, entertainment and gifting, provide a specified amount per month to your teen. Ask them to manage the entire month on the limited budget they have, which will make them more responsible towards money.

Step 3. The power of compounding – Your teen might have learnt the compounding theory in books but it’s time to make them learn in reality. Use an online calculator to show your teen how compounding works so that they just don’t save but grow their money.

It’s time to brief them about the investment options like mutual funds and stocks so that they can understand how your money is invested in these products for funding their education corpus.

Step 4. A strict ‘no’ to credit card – Make your teen understand the dark side of credit cards as it is no free money. They often lead you into a spending spree, and into debt. Credit cards are good if used wisely though, but they might turn out to be destructive weapons in your teen’s hands.

Step 5. Let them achieve their own goals – It’s a good idea to let your teens pursue and achieve their goals on their own like buying a gadget or enrolling into some kind of training. Instead of paying on their behalf, ask them to save and pay for their goals, if not fully then partially. This will bring them a lot closer to systematically work upon their goals in the future as well.

Step 6. Let them experience poor budgeting- Allow your teen to suffer the consequences if they have made poor financial decisions. Instead of giving them excess money, ask them to cut on their own expenditures for the remaining days like no eat-outs with friends and movies just because they have spent their money in shopping. It’s much better for them to learn this now than when they will have to deal with bigger responsibilities in future.

A financial plan will work at its best if the entire family is in sync with it and therefore making your teen understand the same is an important aspect. The above steps require time, effort, and patience from the parent, but they provide experiences that make the realities of personal finance far more manageable to your teenager.

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