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Getting started: Managing money for teens

When you’re young, time stretches out before you, presenting an array of possibilities. The habits created during these formative years can help shape someone’s life, and it’s your job as a parent to guide your teens towards the right ones. Money habits are no different and learning how to manage money wisely at an early age can potentially give teens a leg up for when they’re on their own.

Money basics

Many banks offer introductory bank accounts for teens. With these accounts, minors can open an account with their parents or guardians as the owners or co-owners. As a bonus, parents and guardians can start guiding teens through finance fundamentals with real-world examples and questions.

What is a budget?

A budget is a common way to plan and track expenses by comparing money coming in vs. money going out. By planning well with a budget and seeing where money is going, your teens can start learning to make more informed decisions.

What is a spending threshold?

A spending threshold, or spending limit, is a limit that might be placed on transactions over a set amount. This limit may be adjusted over time.

What are monthly expenses?

Monthly expenses are anything money is spent on within a given month. This can include things like shopping and entertainment, or even school supplies. As the teen transitions to adulthood, monthly expenses can become necessities such as rent, utility bills or loan payments.

How much should kids save?

The exact amount will vary based on budget and savings goals. One way to save money involves helping your teens set SMART goals. SMART goals are:

  • Specific: Give goals a focus. As an example, teens may want to think of something like, “I want to save for my first car” instead of “I want more money.”
  • Measurable: Create goals where it’s easy to measure progress. As an example, saying “I need X amount for my first car” gives teens a clearer finish line than saying “I need some money.”
  • Achievable: The goals your teens set should be realistic enough to stick to and attain. It’s the difference between “I need to save $Y from every paycheck” and “I just won’t spend any money at all.”
  • Relevant: Goals should feel relevant. For young people, something along the lines of “I’m going to save money for my first car” will likely be a stronger motivator than something like “I need to save money for a retirement home.”
  • Timebound: Set a time limit so you and your teen can see if they’re nearing the goal. Saying “I need to save X amount by Y months” can give an end date to look forward to.

Identify sources of money

Between summer jobs, allowances and cash gifts from assorted birthdays and events, your child could have access to more money than you realize. Identifying different sources of income can help both parents and children create realistic budgets together. Alternatively, you may find this is a good time to create a new source of income for your child by turning chores into “jobs,” for example.

Set up a bank account

As stated above, some banks offer products geared toward kids and teens, with parents or guardians as owners or co-owners. There are also starter accounts, without the requirement of a co-owner, for students and teens 18 years or older. Note that two forms of government-approved identification are typically required for all parties when opening an account. Check with your financial institution for specific documents that may be required to open the account.

Although some banks may open these kinds of accounts online, many require an account opening to be done in person, at a branch. Once approved, the account will typically need an opening deposit. Then, when the account is open, teens and parents may be able to take advantage of helpful features, such as:

  • A debit card for the teen
  • Spending and withdrawal limits
  • Money transfers
  • A goal-setting tool
  • Account alerts for the adult account holder to monitor activity

Tracking account activity and accountability

Some accounts designed for minors allow adult account holders to monitor account activity and receive alerts for any transactions over a set amount. This kind of oversight can help the adult account holder monitor spending by the minor.

In summary

The basics of managing money are learnable, and what better time than the teen years to start? With the right guidance and the tools to help, teens can potentially set a financial foundation for a lifetime.

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