In the last post, we looked at one of the most important and revealing conversations you can have with your teen: A discussion about his or her ultimate financial goal.
Once your teen has established a financial goal, the next step is to teach him how to reach that goal over time, and to help him realize that this goal is attainable.
Don’t worry – it’s a simple process that only requires a few elements.
Here’s a way to get started:
- If you haven’t already, consider having your teen open a “financial freedom” account, which will take in money, but never give it out (explanation to follow). It doesn’t have to be fancy – it can be as simple as a savings account. Please note: I strongly recommend that you involve your teen in this process! Doing it for your child prevents him or her from developing this habit. Habit development is the goal here, and the measure of success.
- The basic idea of this account is that your teen will contribute 10% of all the money he receives. You and your teen can figure out a system for managing the account. For example, you can connect your teen’s checking account to this special savings account. Deposit all money into the checking account—paychecks from afterschool jobs, babysitting money, allowance. Then, every time your teen deposits money, he or she can electronically move 10% of it into this savings account. The deal is, for this particular savings account, money never leaves. Never.
- This financial freedom account is your teen’s ticket to reaching his or her ultimate financial goal. Make sure he or she knows how to access it, so they can check it often to see how it grows!
- You can show this chart from the WealthQuest for Teens Basic Seminar online video to your teen. NOW compound interest charts start to become interesting!
- At some point, the money in this account can be moved into one that grows faster than a bank savings
account. (This is an individual decision, and I recommend that EVERYONE consults a financial advisor that is trusted and
known, and stay engaged in the decision-making process).
Please share your ideas, questions, suggestions, and successes on teaching your teen to this important savings habit. We’d love to learn from your experience!
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