Creating a Budget

When your child starts receiving a paycheck, the first lesson to be taught is about creating a budget. Even as a teenager, your child has things that they pay for regularly like sports team dues, gas for their vehicle, they may have a car payment, insurance, etc. Help them set up a budget for everything they pay for in a month, savings for big ticket purchases and retirement, and eliminate any debt they have (even if it's debt to you). Budgeting and living within one's means is the most valuable lesson you can teach your children to set them on the path to financial independence. Don't allow them to get into the cycle of spending all or more than they have. It will only serve to enslave them to their creditors. You don't want that for your children and if you ask them, they'll probably be willing to work with you to avoid that outcome.

Developing a Savings Plan

Even as a teenager, you have emergencies. Your car could break down, mom and dad go out of town and you've got bills due you forgot about like your phone bill, or you get stranded somewhere. Teens need to build an emergency fund as much as any adult. Have them put away a little of each paycheck toward an emergency cash fund they have access to. The best way to help your child learn this is to create an automatic savings plan. Many banks have the option to automatically withdraw money from a checking account and deposit into a savings account on a specific day of the month. Help you child set up an automatic savings that they can't touch except in case of emergency. Just like an emergency cash fund for an adult, you want your child to save three to six months of income (or more) so they learn the principle effectively.

Eliminating Debt

A lot of teens get into debt early. Plastic is easy to access and you don't have to pay very close attention to how much you spend because there always seems to be more money. If you can help it, don't allow your child to have a credit or debit card. If they do get into debt, for example to pay for college tuition, it is a perfect time to teach them about debt elimination. Teach them to pay more than the minimum payment on credit cards, pay off loans early, put bonuses toward debt, etc. Eliminating debt (or not getting into it in the first place) is one of the most valuable lessons you can teach your children.

Planning for the Future

It is never too early to start saving for retirement. If you take a look at how much someone can have for retirement if they start putting money away in their teen years versus if they start in their mid-twenties, you would be incredibly surprised (and probably kick yourself for not getting started earlier). The amount you can save by starting in your teen years is almost ten times the amount you can save if you start in your mid-twenties. Teach your children the importance of saving for the future. Show them how much they can save and therefore have later if they invest in a retirement account early.