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6 ways to instill money management skills in teens

Your teenagers may be old enough to get a part-time job and start taking college prep exams, but do they know how to manage their money?

Parents can get their teens started on the road to financial literacy by taking advantage of ways to teach them concepts like making a budget, balancing a checking account, using credit wisely, or saving for retirement.

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That’s because parents can have the biggest influence on their children’s behavior when it comes to personal finance, says Patricia Seaman, senior director of the National Endowment for Financial Education, a nonprofit focused on financial literacy.

‘‘Even if you don’t feel like you know enough or feel you were raised in a money savvy environment, you still can overcome that and give your kids a good foundation,’’ Seaman says.

Here are six ways to instill your teens with money management skills for college and beyond:

Cover the basics early — Personal finance education should ideally begin when children are in elementary school. This is a good time to establish an allowance, say for doing chores around the house.

When children are between 5 and 10 years old, it’s an ideal time to set them up with a savings account. That can help children begin to learn the value of saving and compounding interest — even if the small return might not generate much excitement for young kids.

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Many banks offer savings and checking accounts tailored for young children and teens. Capital One Financial’s Kids Savings Account currently offers a 0.75 percent variable annual percentage yield, with no fees or minimum balance. And Wells Fargo’s Teen Checking account lets parents set daily limits on debit card purchases and ATM withdrawals.

Give teens some financial responsibilities — It’s important to hold teenagers accountable for their financial choices. This could take several forms, like requiring them to pay for their own monthly mobile phone subscription or the online account on their video game console. Money management lessons can be found by giving teenagers a clothing allowance and letting them buy their school clothes on their own.

And even if they elect not to spend wisely and end up with, say, one pair of fancy jeans and not enough socks or underwear, that’s OK.

‘‘You want them to go ahead and make small mistakes with not very much money while the stakes are still fairly low,’’ Seaman says.

In this spirit, parents might also consider giving teens an ATM card to access an account with a limited balance and no overdraft protection.

Consider a teen retirement account Your kids will probably have to rely on their savings and investments to help cover expenses when they retire.

That may seem like a distant concern, but youth is an advantage when it comes to maximizing returns in a retirement account. And, having them invest some of their earnings for their golden years now will help make it a habit for years to come.

Once a teen lands a job — an allowance won’t do — open a Roth IRA. It allows accountholders to contribute a portion of their paycheck after taxes.

Seaman recommends teens set aside a minimum of 15 percent of their paycheck toward their retirement account. And that parents use the opportunity to teach them about the stock market, risk and return, and how they have a long timeline ahead that will allow them to recover from setbacks.

Manage early credit use Managing credit card debt and spending can be a major problem for many borrowers, but especially young cardholders.

Teens under 18 are not allowed to open a credit card account on their own, though use of prepaid cards in high school can help establish good spending habits.

Parents with teens going away to college may want to add the student to their card to cover books or emergency expenses. But a shared card account also can help parents keep tabs on their student’s spending and payment habits.

Make car buying a lesson — How to turn buying a car for your teen into a money management lesson? Rather than handing over the keys to a car on the teen’s 16th birthday, get him or her involved in doing all the homework that goes into a car purchase.

Ask for comparisons of different models according to features like price, projected maintenance costs, and mileage. And have the teen call insurers to find out how much coverage will cost.

Get them involved in household finances — Another way to help teens is to give them a closer view of household financial decisions.

Walk them through the monthly bills and let them see how much is spent to keep the heat and the cable TV on, as well as funding retirement accounts and debt payments.

To help frame the money management conversation, the National Endowment for Financial Education has a booklet that can be downloaded for free at www.hsfpp.org. And for teens nearing graduation or headed for college, check out www.cashcourse.org/prep. The site, also run by the endowment, explains many financial issues.

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