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March 25th, 2015

Teach your teenagers to save, invest

 

 Gaining the knowledge and developing the skills to become financially literate is a lifelong process that begins with something as simple as putting a few pennies in a piggy bank, and evolves to more advanced subjects such as risk and asset allocation. Some parents may have a difficult a time talking with their teenagers about money, but it’s critical to their survival in the real world.

Unsure of where to begin and worried about saying the wrong thing, many adults simply avoid conversations about money. This is often made worse by adults’ lack of confidence in their own handling of finances. It is important for adults to remember thatthey have experience and perspective on their sides, and can draw both from their financial mistakes and successes to share essential knowledge and skills to their children.

Practice what your preach

Perhaps the best way to encourage a savings habit in your teenagers is to be a saver or investor yourself. Teenagers are likely to put more credence in your message to save or invest if you already practice what you preach. It is important that you examine your own attitude towards money so that your words of wisdom to them do not ring hollow. Teenagers are notoriously effective at identifying the inconsistencies between parents’ stated values and their actions.

Teenagers are also likely to be more receptive when you talk in terms of their needs. Before you start imparting to them the value of money – and run the risk of nagging more than teaching – understand that teenagers may not yet understand the value of delayed gratification.If you don’t talk about money, your kids may end up thinking that it grows on trees and they don’t have to worry about it. Early exposure to goal setting helps to give them patience and vision.

Value of budgeting

Instill in them that good money management starts with a budget. This tool is priceless to developing lifelong money management skills.To help your teenagers get off on the right foot, let them appreciate the benefits of income and expenditure. Your teens must appreciate that some items will take longer to save for than others. Help them set their goals and show them that they need to take responsibility for the way they spend their money. Teach them about having goals, both long term and short-term. Early exposure to goal setting helps to give them patience and vision, two things they’ll need in life.

As a parent, you can illustrate the importance of investment by pointing out how your teenager enjoys everyday necessities. For example, how much of your salary goes towards paying for the mortgage and paying the installment on the car. This makes work seem less like an oppressive task and more like a necessary part of life.

You should involve your teenagers in simple financial tasks. By introducing your soon-to-be adults in the daily grind of paying the bills, balancing the checkbook, depositing and withdrawing from banks and even managing a TT Income Fund Accountthat invests in a diversified range of fixed income securities. They will have a broader view and better appreciationof how money works.

Benefits of Investing

In order to sowthe seeds of a saving habit,encourage your teenagers to take a trip with you to the Unit Trust Corporation where they can learn thevalue of investing. Seeing how money can grow throughthe power of compound interest (income earned on income over a period of time)can be a real incentive to any teenager. As part of its thrust to encourage saving and investing, the UTC has a suite of mutual funds that are tailored to meet the changes in their lives.  For instance, the Growth and Income Fund, where the fund is invested in shares of local companies trading on the stock exchange, government and government and guaranteed bonds, short term securities and foreign investments, is a great way to show teenagers the value of investing for the long term.

For parents, an added incentiveto develop a savings culture is to match their contributions. Whether they make money by helping set up a website or washing the neighbour’s car, matching their contributions is a surefire way to encourage savings.By doing so, you canmotivate your teenagers to save towards reaching their financial goals.

In these difficult financial times, teaching your teenagers what to do and what not to do when it comes to saving and investing is more important than ever. Don’t waste any more time as their financial health is at stake.

Tips for teaching teens about improving financial literacy:

Cut back: You and your teenagers can come up with ways to cut down on their spending so they can save more money. Encourage them to put this money into a TT Income Fund Account where they have easy access to their funds. Only TT$100 is needed to start.
Save for future goals:Understand that teenagerscan learn a lot by deferring instant gratification. Saving for that mobile phone can be invaluable. With a budget, you can identify areas of extra spending and reallocate that money towards a future goal.

Check Up: Check in with your teenmonthly to assess their financial situation. Help them review to ensure they stay on track with their savings.

No credit card: Don’t give your teenager a credit card. Many kids think of credit cards as a magic wand they can use to buy things, without ever thinking of the real cost of an item.

The earlier you can teach your teenagers about the benefits of saving, the better prepared they will be to manage their own money in their adult life. Teens can be frighteningly ignorant of the value of saving and investing, so the earlier you address it, the better.