Parenting is tough. Regardless, you’ve done your best to prepare your children for all sorts of things that life has to throw at them. As they mature into young adults, you want them to grasp the importance of financial responsibility before they leave home. In the past, most parents anticipated that their children would go to a four-year college after high school. However, times have changed, and we know that some high school graduates won’t apply to a four-year school right away, while others will take a different career route entirely. Regardless, helping develop Gen Z financial literacy should be a priority for any parent. It takes thought and consideration to get teens thinking seriously about developing good spending habits, and we’ve got some ideas to help you get started.
Where to begin the conversation about Gen Z financial literacy?
Begin the conversation with your teen by finding out what they already know about personal finance. Not knowing the answer isn’t as important as finding out their approach to solving the problem. Help them with answers or how to find them and make filling in the knowledge gaps a positive experience that builds independence while also reinforcing that they have your support in the process.
What were their experiences with money at home?
Some parents give their children weekly allowances. If you gave them an allowance, do you know how they spent it or whether they saved? Was the allowance incentivized or not? Other parents encourage their children to earn cash with part-time or seasonal work and open a savings or checking account. Whatever your approach, every family is a little different, and so is every child. Your main objective is to help them not get caught unprepared or make any major financial blunders that could impact their future.
How about checking and savings accounts?
It’s not too early for your teen to open a checking or savings account if they’ve never had one. Again, ask what they think about it. If they already have an account, are they happy with the ending balance each month? If not, explain how to set spending limits and begin to talk to them about saving the money that they don’t need.
Credit cards and banking fees
Giving your teen a credit or debit card doesn’t need to be a scary experience! After all, if you trust them to drive a car alone or manage their own daily schedules, then managing their finances is a logical next step. Just make sure you do your due diligence when researching the best option. Some factors that you’ll need to give special attention to include:
Set a spending limit for their first credit card. Many card companies will allow you to add a user specifically for teaching your teen money management. Card services will allow you to restrict forbidden purchases and you can view their entire transaction history.
Interest and fees
Tell them about making more than the minimum monthly payment, how interest accrues on the balance, and the fees that get added for missing a payment. Make sure they understand that it will be their responsibility to cover these fees should they miss a payment or spend beyond the limits you set.
Credit card applications
Credit card companies know that kids are in school, and they are known to flood student mailboxes with enticing notions to apply for new cards. Unneeded cards lead to excessive spending and financial hardship. Do your child a favor and tell them to toss them in the trash! It’s a great opportunity for a lesson in discernment when making financial decisions.
It’s important to communicate with your teen in every step of this. Make decisions together so they can learn the ins and outs of these sometimes-complicated systems. Making unilateral decisions on their behalf won’t help them learn anything, so put in the extra effort to ensure that they are part of the discussion.
Establishing good credit
Trying to establish credit when you have no job or credit history is, of course, a bit of a catch-22 situation. However, Gen Z financial literacy is all about beginning with small goals. What does establishing good credit mean to your Gen Z kid? How do you help them begin?
Lay the groundwork
By this point, your child should already have experience with a checking or credit card account. They always maintain positive daily balances and are good at setting spending limits.
Begin on a small scale
Low-interest, secured credit cards are a great way for your child to start building their credit history. These cards will have much smaller credit limits and are backed by a cash deposit. They are a great way to help a young adult start building credit, but they do tend to come with some additional potential fees, so just be sure you talk your teen through the payment schedule in detail.
Retirement Savings Plans
Retirement savings plans for your child is a great topic to cover with a financial planner or advisor! How does one explain retirement savings to a teen when they’re still in high school or college and may not yet even have a job?
The biggest component of Gen Z financial literacy here is awareness. Becoming aware of the need to begin retirement savings early can, of course, make a dramatic impact on their lives later on. If they prepare, they won’t miss the opportunity to take full advantage of the benefits of their first job out of college. And with the right financial advisor, they’ll find themselves one step ahead in having a fulfilling future and being on target for retirement.
The top Bay Area wealth management team at SD Mayer knows that you want to set your kids up for success, and they can use their decades of combined experience to help you with more useful tips on how to guide your teen’s first steps into becoming financially sound. Contact us today to get started with an initial consultation.