Leaving the nest, there are money milestones that teens can begin to prepare for. Find out the top three and how to prepare your child now.
Not all lessons can be learned in school, particularly concerning money. Both parents and their kids alike will learn a lot about finances by going through experiences themselves. These are things like getting on the phone, asking questions, giving things a try, and even making mistakes.
Your children will undoubtedly learn some of their most valuable life lessons by making mistakes here and there. But, a parent must help prepare their kids as best as they can for any major money milestone. Having teens sitting on the threshold of the real world, there are plenty of huge moments headed their way.
3 Money Milestones for Teens that You Can Prepare for Now!
That being said, now is the time to share your own experiences, previous mistakes, and best advice with them. You can help ensure that they’re financially mature enough to take on some of these responsibilities later on in life. Below are three of many life events you can prep your teens for, along with financial tips and tricks.
1. Their first car
Perhaps one of the most anticipated adventures for teens – and the most relevant at this point in their lives – are buying their first car. Often, having a part-time job in high school and a lack of driving experience makes buying a used car the perfect option for teens. As most cars purchased by teens cost several thousand dollars, this can be the perfect opportunity to demonstrate the importance of getting a job at the earliest eligible age and saving the money you earn.
Did you know that 81% of people conduct online research before making any significant purchases? Buying a first car should be no different; make sure your teen is involved in the research stage. Help your teens set up a savings account and look into how much money to spend on a used car. Then, create a savings goal and, using standard budgeting practices, decide how much of each paycheck they should dedicate to their savings and for how long.
Another great way to research buying a car is to visit showrooms such as RIX Motors to help your teen get used to the types of cars available on the market, what their budget can stretch to. Also getting some real-life experience in the types of questions to ask a car salesperson, optional extras, how a salesperson will look to upsell and what type of cover or protection they might need to run alongside their insurance. A teen can also look at car finance options should their budget and income allow for this and this too can be a useful tool for taking on future credit.
2. College
Once college rolls around, your kids will have a lot to learn about money. From discovering the actual costs of today’s higher education system to being exposed to the world of debt and all, it encompasses – going to college is eye-opening. Teens with a few thousand dollars in savings jump into an average of over $32,000 in debt after college. This requires a significant adjustment in how your money is spent. You might be considering alternatives to help your children pay for college. A good option might be a Parent PLUS loan, as you can be qualified for competitive rates, and if needed, you can refinance the loan from your name to your childs´.
Budgeting will be an essential skill to master to prepare your kids for college. Controlling spending will help them be more conscious of how they allocate their limited funds while away at school. To prepare them for managing debt, talk with them about how you conquered your debt. This can be student loans or even credit card debt. You and your child can also attend a meeting with a financial advisor to find out how much money college costs in the long run and what your payment plan will look like.
3. Home buying
Buying a home will surely come in the years beyond your teens, but it’s never too early to educate your child on all that goes into this investment. Today’s homeowner knows it’s painfully true; homeownership is expensive. A $150,000 house costs a lot more than $150,000 down the road. A few thousand dollars in closing costs upon purchasing, and tens of thousands of dollars in home improvements and repairs a few years later – your kids should be aware of the real, escalating costs of homeownership.
Good financial sense is important to acquire early on for future home buyers because all aspects of your finances will be under a microscope when applying for a mortgage. Your credit, savings, and debt-to-income ratio (DTI) will have to meet a specific set of requirements for certain types of loans, which often takes years of refining your finances to accomplish.
Take FHA loans as an example; this typically available home loan for inexperienced buyers requires a credit score of at least 580, a down payment of at least 3.5% of your home’s value, and a DTI no higher than 43%. All that considered if home buying is one of your teen’s long-term goals, not only will they need to know about these financial guidelines, but they’ll also need to know how to build up these criteria.
There are several types of loans available when it comes to home buying such as usda home loans. Make sure to do your research ahead of time to know which type of loan is best for you.
3 Money Milestones for Teens that You Can Prepare for Now!
The earlier you can instill good financial practices into your child like researching, saving, and budgeting, the easier it will be for them to become financially independent. Not only that, but it will also make for a smooth transition into adulthood and the real world. Let them know that it’s more than okay to make mistakes, and most importantly, that you’re there to lend a helping hand every step of the way.