You might not think finances are a huge priority for your children in their teenage years. But given the state of homeownership for future generations, you’d be wise to plan ahead. The Resolution Foundation think tank discovered that overpriced homes in the UK have forced millennials into “increasingly cramped and expensive rented properties” with “little chance of saving for a home.”
Buck the trend and give your children a strong head start among their peers. Here’s how to set your teen on the right path to becoming a budgeting demigod and a future homeowner.
Start budgeting early
You’re probably all too aware that teenagers can be reckless with money (booze, clothes, festivals anyone?). Unless your teenager is a natural born super saving machine, chances are saving money is the last thing on their minds. Learning to save is an essential skill. Without it, your teen will have serious trouble down the road when they want to flee the nest.
If your teen gets pocket money or has a part time job, encourage them to start budgeting! With a few skills, saving money is simple no matter how much you earn. You set a budget and decide what you can afford to save.
The sooner your adolescent learns the importance of budgeting, the better. Start small. Imposing serious and, let’s be honest, boring concepts on your child out of nowhere is going to go down badly. Teach them that by setting aside small amounts each week adds up, they’ll be able to afford bigger and better things in the future (which would’ve been the Call of Duty for a 14 year old me).
If your teen gets into the habit of budgeting, their adult life will be a whole lot easier. Owning a (half-decent) home costs money. Lots of money. Unless you want your beloved child to live in a windowless shack in the woods straight out of a horror movie, they’ll need to save a lot of money. If your teen has been setting money aside from an early age, they’re going to have a great head start!
Teach your teen the real cost of living
I’m sure you know all too well how much things cost these days. You might not want your kids knowing the ins and outs of your finances. But, even if they’re financially educated to the nines, dealing with real money is another story.
A meal out, a trip to the cinema, your summer holiday… all these things cost money, which is something that kids take for granted. It’s easy for teens to throw a door-slamming, foot stomping tantrum over those designer trainers or handbag you couldn’t afford to buy them. But, if they knew the true value of money and how much YOU had to save to buy them, they might not be so quick to go into stroppy teenager-mode (believe me, this used to be my default setting).
Be transparent with your finances. This doesn’t mean they need to know your wage or the contents of your savings account. Tell them how much your holidays cost – this ones a real eye-opener!
Know the difference between good debt and bad debt
Do you remember your parents sharing their money management wisdom with you? Did they tell you debt is bad? If so, your parents were wrong! Sorry folks. The truth is, not all debt was created equal. Unless you’re a yacht-owning caviar guzzling millionaire with a fortune to pass on to your children, they’ll NEED debt to buy a home. Of course there’s definitely certain kinds of debt to be avoided at all costs. When it comes to showing your teens the ropes, try looking at debt like this:
- Budgeted and planned for
- An investment in their future
- Cost reductive (which means it saves you money in the long run. Think student loans or mortgages)
- Unlikely to ever be paid off
- High interest rate
Money Saving Expert, Martin Lewis does a great job of explaining the difference between good and bad debt. He also points out that it’s not always so clear-cut. Your kids will face a lifetime of financial decisions to make. There won’t always be a right or wrong choice. As a (savvy) parent, all you can do is make sure they’re equipped with the right tools to make an informed decision. Here’s our 4 step process for considering debt:
- Do you have a good reason for taking on debt?
- Do you have a plan for paying it back?
- Will you be better off in the long run
- Have you made sure it’s best deal for you?
Teens may feel like they have a monetary mountain to climb to become homeowners. But, if they start now, by the time they reach adulthood budgeting will be second nature and financial management will be a piece of pie. Sure, their school may teach them some basics. However, it’s the habits that YOU teach them at home that’ll set them up for life!