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Banking Basics: How to Teach Young Adults Financial Competency

September 23, 2019
Written By: Emily Graham

Throughout adolescence, your kids are transitioning into adulthood. During this time, people have experiences that will help form the person that they'll become. As a parent, it’s your duty to teach your teenagers some of the basics needed to be an independent and responsible adult. Money management is at the forefront of these fundamentals as it is necessary in order to prosper. Here are some tips for teaching young adults about financial responsibility. 

Familiarize your teenagers with the tax system

Even if your teenagers don't currently hold a job, it can be helpful to teach them about the tax system and the filing processes involved. While learning how to manage money is critical, financial literacy also includes knowing how to pay taxes as a responsible adult. Part of this is helping teenagers understand how to manage their income after taxes have been taken out. Nobody likes seeing a paycheck cut in half after taxes, but this is part of being an employee in our society. It's also important that they understand how tax money is used. This knowledge will offer your kids a lot more confidence in the workplace and give them a better understanding of their contributions.

Show your teenagers personal financing strategies

Transparency and personal references are great tools that can be used to teach adolescents how to responsibly handle their money as adults. As an adult, you’re successfully managing your finances on a daily and monthly basis. Giving your children a look into your money management system is a great way to teach them what it takes to operate as a financially responsible adult. While you don’t have to reveal every aspect of your personal finances, showing some real numbers can go a long way in providing a real-life depiction of what money management looks like. 

Teach about the extra costs of driving

If you have a teenager who’s learning how to drive, it’s time to talk about insurance. This is a critical component of managing finances related to vehicles, which your child will most likely have for the rest of their life. Teenagers should know that minimum insurance coverage is mandatory, and there are varying types of car insurance. This is an extra expense that should always be factored into the driving budget. Unfortunately, teenagers usually pay higher premiums due to being considered riskier to insure because of their age and lack of experience -- most 16-year-olds have 100 driving hours or fewer under their belt. Boys also tend to be charged more than girls. As a parent, you may consider adding your child to a current insurance policy to keep the rates lower. 

Stress the importance of saving money 

When people are younger, life is often lived in a more immediate sense than as an adult. This means that your teenagers may have a tendency to spend the money they earn right away. As a parent, it's important to instill within your children the importance of saving money. Depending on their age, you can help your teenagers establish a savings account. You should encourage your child to put a certain percentage of their income in the account each time they’re paid. Some parents even match a percentage of their teenager's savings to help reinforce the habit.

Teenagers are making the momentous transition from childhood to adulthood. During this period of adolescence, they’ll learn more about the world and the person they’ll become. As a parent, it’s your responsibility to teach your children about the importance of managing their money. It’s one of the most crucial aspects of becoming an adult.