As summer gives way to fall, many of you are busy sending your children off to their first day of college or high school. After years of homework and extracurricular activity, you may look back with pride on the time and energy that your family has invested in their growth and learning. At the same time, you may find that your child received little formal training on how to handle one of the most important aspects of their future lives — money.
The American Council for Education found that only 17 states require personal finance classes in high school, and only 22 states even require schools to offer them. You have probably noticed that very often it’s not how much money people earn but the way they manage their income that can set them up for future financial success and security. When your child leaves home for college, the military, or their first job, do you know if your child has grasped essential financial milestones for teens that will ensure they handle money wisely?
Financial Milestones for Teens and Young Adults
Kids grow up fast, and it’s never too early to teach them to steward their money. You can give your child the lifetime gift of a great financial education if you encourage them to meet these financial milestones for teens and young adults:
Middle School Money Management
Children as young as eleven or twelve should understand the importance of saving money for future goals or even unexpected events. By now, your son or daughter has probably started to ask for more expensive things, like the latest mobile phone, game system, or fashionable outfits. Consider asking them to set aside some of their gifts, earnings, or allowances to help make these pricier purchases. At the same time, they can start contributing part of their own savings to buy gifts or even donate to charity or a house of worship.
Of course, even adolescents should understand that savings will help them weather unforeseen expenses, such as an impulsive outing with friends or a broken calculator. Of course, you’ll still probably provide the funds for most of their needs; however, you’ll only do them a favor if you have your child assume some responsibility.
High School Finances
Up until this point, your child probably dealt mostly with cash or a debit card that you helped finance. By high school, most teens are ready to open their own checking account, if they have not done so already. Most banks offer free or low-cost checking accounts for students.
Choose a bank with good tools for managing account balances, such as low-balance alerts. It’s so easy to swipe debit cards that even some adults forget to keep up with their spending. Even though younger people rarely write checks, make sure they know how and also, how to find their routing and account number.
If you create your child’s checking account at your own bank, you can connect it to your own account. That way, you can help them manage their money by overseeing their spending and making certain that they don’t allow their account to drop too close to $0. Sometimes, you may need to step in to council them about their money management, but at least, you’ll have a chance to do that while you still have control over their actions.
Investment Planning After High School
By the time your child turns 18, he or she should have a good understanding of the importance of savings, managing funds, and how to maintain a checking account. The next steps in a financial education should include:
- Managing credit: Good credit can help your child make large purchases and weather emergencies. Help your child understand the importance of using credit wisely and never missing payments for student loans or credit cards. You might guide them towards that first credit card, so they can build their credit and their credit-management skills. Some banks offer credit cards for college students with checking accounts, even if they haven’t established credit. Otherwise, you might look into making the student an authorized user on one of your cards or secured credit cards. For more detailed tips, check out our previous article on helping college students build good credit.
- Enforcing information hygiene: Sadly, all sorts of scammers try to profit off of the mistakes of others. Make sure your kids know how to create good passwords and not to give away information about any aspect of their personal or financial life too freely. For instance, have them memorize social security numbers instead of carrying their cards in their wallets. Also, many banks offer credit monitoring services for free, and you and your children can benefit from these useful perks.
- Helping with tax matters: Any accountant will tell you that tax planning is one of the most important aspects of finances. Beyond understanding how to fill out various tax forms and documents, young adults should also begin to understand the tax impact of various decisions. For instance, make sure they understand how much to withhold from their paycheck to keep from having to make an unexpected payment at tax time. You might introduce them to this IRS withholding calculator that can help.
- Opening their first Roth IRA: For almost all of us, saving enough money for true financial security takes time. Compound interest allows earning on their savings increase balances and contribute to even more future savings. The good news is that your son or daughter has time on their side if they open a Roth IRA, even if they start with modest deposits. Remember, you need earned income to open a Roth IRA. The limit is generally the lesser of their earned income amount or $6,000 in 2019 (or $7,000 if you’re over age 50). And remember, your son or daughter can always withdraw the money from a Roth IRA with no penalty in case of an emergency.
Take the Next Step in Your Family Finances
This article focused upon financial education and planning for young people, which we view as a piece of a larger plan for your family and finances. Here at Magellan, we’re ready to help guide you and your family at any stage of your journey. We will ease the transition for your child from teenage years to young adulthood. At the same time, we also help families save for such goals as home purchases, college funding, and retirement. Contact Magellan Financial today to find out more about college savings plans, investment planning, and financial aid – and beyond.
The opinions expressed in this report are those of the author(s) and are not necessarily those of Wells Fargo Advisors Financial Network or its affiliates The material has been prepared or is distributed solely for informational purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy.