Practical Finance Tips To Teach Your Teen

Personal finance is an often overlooked part of a child’s education. While things are getting better in modern times, most students lack practical money management experience that can help them cope with the sudden responsibilities of being an employed adult.

So what can parents do to help? Here are some focus areas to give your teen a leg up in life:

Teach your teen about taxes

Benjamin Franklin is said to have famously said that the only two certain things in life are death and taxes. He wasn’t wrong. Regardless of whether your teen chooses to become an employee or an entrepreneur, the taxman will certainly come calling. Since filing your taxes is an yearly exercise in most regions, this is also a good opportunity to sit your teen down and explain how tax works, how incentives and exemptions are structured in your country, and why it is important to make financial decisions that can have potential tax benefits.

For example, in India, taxpayers get exemptions for investing in capital markets through equity linked savings schemes, thus promoting liquidity in the markets and helping individuals save tax. The same goes for loans taken for buying a house, health insurance, or more recently, an electric vehicle.

If you have made any of these decisions, tax filing is an excellent time to explain the rationale behind them, and show your teen the consequences of your decisions in the form of tax saved. If your financial knowledge allows, also take this opportunity to explain why the government structures incentives to nudge individuals to make these investments, particularly the benefits to the stock and real estate markets, as well as banks and government policies. Since taxes, like gravity, permeate most things, tax filing is the perfect exercise to involve your teen and show them the ripple effects in one go.

To buy or not to buy?

If real estate comes up in your tax discussion, try using the chance to teach your teen about investing in real estate by buying a house vs fulfilling the need for shelter by renting. The key point is to explain concepts like liquidity, historic performance of the sector, and rental yield, which are primary reasons why more people are delaying real estate purchases (or choosing not to buy property at all). This might well be the case with your teen as well, as we move into an increasingly remote culture. Remember to remove your own emotional bias about purchasing real estate (if any) and explain the concept to them in practical terms.

Introduce them to the stock market

In many ways, this is the most important knowledge you can provide your teen. Assuming you’re an investor yourself, take some time to take your teen through your portfolio using simple percentages to denote how it is performing compared to other investment classes, like gold, real estate, bank deposits etc.

While a broad understanding of the stock market might be difficult for an individual to impart, there are plenty of resources created by individuals and brokers available for free on the Internet. Encourage them to use these and learn systematically if they display an interest.

Practice the practical

The intricacies of the daily handling of money is not something that can be entirely taught. Let your teen handle their own money and get acquainted with their own decision making process. Of course, with your guidance they will slowly but surely gain confidence regarding money management.

Here’s a post we did on paying your teens for chores.

These steps individually may seem trivial, or even too complicated for a teen, depending on how you view personal finance. But understanding them and how they interact with each other can be a powerful tool in your teen’s arsenal when the time comes for them to manage their own money.

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