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Teens and Debt: What Parents Need to Know

It’s no secret that most teenagers are consumers. They’re also highly coveted as customers by companies, brands, and sales teams alike. If you have a teenager in your house, you know their wants usually exceed your financial limits, and giving them everything they ask for would result in some massive debt.

That being said, if quizzed, only a few would know much about budgeting, saving, investing, loans and credit cards, or credit scores. That leaves a lot of work for parents.

Many teens are only a few years away from leaving home for school or to strike out on their own. However, doing so without the basics in money management can set them up for a big debt load in the future.

As they embark on another summer of fun (and spending), now’s a good time to look at a few financial topics to pique your teen’s interests and get them started down the right financial path.

Start the conversation

When it comes to money, there’s a lot to talk about.

This article from the Globe and Mail lists interesting questions that your teen might be curious about. Discuss them together, and be honest with them. It’s difficult for teens to respect money and have an understanding of how to set realistic goals and timelines if they don’t understand the true costs of living.

Here’s an article from Nerd Wallet on setting realistic financial goals that you can read with your teen.

Most teenagers don’t have any clue about how much money it really takes to live each month. Supporting a family, paying a mortgage or rent, covering utilities, paying transportation and maintenance costs–few teens would consider any of these costs “fun purchases”.

Learning how much the necessities of life cost can give teens an idea about why parents and families have to put off non-essentials, and it reinforces the difference between wants and needs.

The realities of debt and credit

Talking about money, and about debt specifically, isn’t comfortable or easy for everyone. But as Money Coaches Canada put it, “the sooner we untangle our self-worth from our net-worth…the more we break down the taboo about money”.

The more comfortable people (and parents) are having money talks, the more honest they’ll be about the ins and outs of finances with their kids. That means you have the opportunity to make financial literacy a part of daily life, and solidify the lessons you’ve learned, and the values you share about money with them.

Moreover, teenagers who are comfortable talking about money and see the adults around them comfortable receiving and answering tough questions are more likely to be honest about their own finances.

And if they’re comfortable being honest with you, they won’t hide those miss-steps, which means you can help them resolve any financial problems. Whether it’s borrowing money from a sibling or a friend and not being able to pay it back, or blowing all their saved money on non-essentials that put them in a pinch later on, teens are going to make mistakes.

Consumer debt is tempting. Making purchases is easier than ever today, with the availability of online shopping, digital payment methods, and a widely cashless society. Help them identify and learn from their mistakes by being honest about yours–if they inquire about your own spending regrets, open up. Teach them how to use credit carefully and know the full weight of that action.

Letting teens know about the long-term effects of debt problems or not reducing debt quickly is important. Show them that managing their money well and paying down or avoiding debt is rewarded with a good credit history and score, and that not doing so means they will have to put some serious time and effort into fixing it, and may need help with their debt.

Credit shouldn’t be the first method of payment. Teens can learn to save and manage their money to make smart purchasing decisions.

Futurfund’s article on frugality reminds readers that spending less has great rewards.

Help them find the budgeting strategy that’s best for them with this Futurfund article on budgeting.  

Teens also love being mobile–Mints online and mobile budgeting tools make it easy.

Supporting your teen as he or she explores their financial footing is a long-term job. Being honest with your kids and willing to share and work together can remove the taboo from talking about money, and help them build respect for money, and set realistic financial goals to help them avoid debt problems.

What are the hot financial topics in your household? Tell us on Twitter. #BackToSchool #DebtSolutions #HighSchoolParents

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