Middle School Children & Budgets
Peer pressure for children this age can be an enormous force for enticing your child to spend. Teach your child about the major spending categories in your family budget that include food, shelter, clothing and transportation and how your income shapes the amount of money you can spend for each area. Explain that if you overspend in one area, you must spend less in another. Just one item, rising gas prices for example, can impact your entire budget. Discuss the pressure that advertising and friends exert on your child to buy the “latest and greatest” items and how to prepare for this. A spending diary (see exercise at right) can help children identify where their money is being spent. Now is also is a good time to revisit the topic of compound interest and savings. Compound interest occurs when money in an interest bearing account earns interest on the previous interest paid. For example, if a savings account with $100 earned 10% monthly interest, the account would have $110 in it at month’s end. Then, as interest is calculated on the second month, it is based on $110, not the original $100. At the end of the second month the person would have earned an additional $11 in interest and now have $121 in the account.
Preparing High Schoolers for the Real World
If your child has already learned about goal setting, saving, credit, and basic budgeting, good! If not, start the teen years by communicating these skills. Encourage your child to take any personal finance instruction offered in school. Have fun with your teenager by searching and visiting quality personal finance web sites. Use your teen’s first job as a teachable moment to review subjects like taxes, insurance, and setting up and balancing a checking account. Debit cards give your teen a chance to learn about keeping track of expenses paid from an account and also allows you to review how these cards are different from a credit card. When teenagers go to college, many are bombarded with credit card offers. Take several of the offers your teen receives and evaluate the offers together. You can discuss that credit card purchases are loans for which the teen must pay the credit card company interest for using the company’s money. The best way to avoid paying interest is to pay off the balance each month. Compare interest rates, annual fees, late fees, and grace periods. For your teen’s first credit card, consider getting one that allows you to establish a ceiling on the card, such as $500. This is also a good time to talk to your teen about insurance. Teens need to understand that insurance is a way of managing risk. Discuss with them how much they think a major illness or car accident might cost. Insurance can protect them from financial loss resulting from occurrences beyond their control.
Need More Resources?
Make sure to visit the other sections dealing with credit management: