What teens should know about financial literacy
This article was written for our sponsor, RTP Federal Credit Union
By the time they’re teenagers, kids may have spent years watching their parent’s budget, save, and spend. With their first job, teens are likely ready to begin handling their own money. For the most part, it’s up to parents to make sure they are learning good financial habits.
"We have found that financial literacy isn’t a focus in many schools," said Jill Beck, the Marketing and Members Services Director at RTP Federal Credit Union. "We encourage teens to open accounts and have their first checking account with us. It’s important because learning how to manage money cannot start soon enough in life."
Start with saving
Teens should start by opening a savings account and getting into a routine of depositing money, even if they don’t earn much.
"Make a plan to deposit on a regular basis, no matter how big or small the deposit," said Beck.
The important thing is for teens to make saving a habit, with an account that will help them learn to save and spend responsibly.
"I don’t believe kids are learning enough about real life finance in schools," said Kristin Lombardi, the Member Services and Loan Manager at RTP Federal Credit Union. "When we open accounts for teens, or actually anyone, we explain everything, including how to avoid fees."
Some goals, such as buying a car or paying college tuition, require a long-term commitment to saving. If a long-term goal is difficult for a teen to stick to, parents and guardians could provide encouragement by agreeing to match a percentage of savings or by providing bonus incentives for reaching savings benchmarks. Fortunately, RTP Federal Credit Union offers its own incentive.
"The rates we offer for kid and teen accounts are slightly higher than our regular share account to help teach kids to save and earn interest," said Lombardi.
The dangers of credit cards
It’s not a good idea to give teens a credit card before encouraging them to learn to save before spending.
"If you don’t have it in your account, don’t spend it," said Beck. "Open a savings account first."
However, it is a good idea to talk to teens about how credit cards work, what good credit is, and how interest works. Eventually, they will likely have a credit card, so they should know how to use it.
"My top financial advice for teens is, when you get your first credit card, do not max it out," said Lombardi. "If you are looking to build credit, do not even use half of the limit, and then make sure you pay it off when you receive the bill. If you don't pay it off, the items that you purchased will cost more when the interest is applied."
How loans work
Sometimes a teenager will need a loan to pay for a large item, like a car. Teens can’t legally sign contracts until age 18, but parents may choose to take on the loan and ask the teen to make monthly payments to cover the cost.
Teens should understand loans aren’t free money and that, when they make a payment, they will owe interest. They should only apply for loans when they can’t save for something any other way.
They should also know, by looking at their budget, if they can keep up with the monthly payments. Being late on a payment isn’t like turning in homework late; late payments hurt their credit scores, affecting their ability to apply for loans, credit cards, and even some jobs long into the future.
Begin early
It’s never too early to help kids and teens start learning how to use their money wisely.
"Our youth accounts actually start at age zero," said Beck. "At age 16, they are eligible to open a checking account with a debit card. We encourage them to sign up for home banking and learn how to manage their account."
This article was written for our sponsor, RTP Federal Credit Union
