Money may seem like the least of your worries in your teens, but knowing these 12 money lessons will help pre-teens become financially wise adults.
It would be a bit of a stretch to call today’s pre-teens young and foolish. They probably have it much harder than most of us did when we were their age. Notwithstanding the pressure to look a certain way that social media imposes on them when hormones are throwing their bodies out of whack; there is also the added pressure to grow up to become “an achiever” and “live the dream”. There’s a ton of advice out there that tells them how leading a disciplined life will get them closer to their goals or how they can ace juggling studies and extra-curricular activities. However, advice on how to start early when it comes to managing their finances is probably few and far between.
We’re going to share some easy tips on how as pre-teens you can start saving early and maximise the money you make:
1. Understand Your Income
As a pre-teen, while it may be hard for you to have a steady flow of income, you can still earn some money on the side through part-time gigs or by taking up jobs that offer you quick money like babysitting, taking your neighbour’s dog for walks, tutoring, etc. In India, getting cash gifts during Diwali, birthdays, etc. is a common practice. Instead of using this money to buy yourself the latest phone or gadget, you should consider putting all of it in a Fixed Deposit that will offer you a sizeable sum later.
Additional Reading: Money Advice For The Parents Of A Teenager
2. Project Your Expenses
As a pre-teen, you’re likely to have monthly expenses like mobile phone bills, tuition fees, recreation expenses, grooming costs (haircuts, clothes, etc.), and so on, that you will need to plan for if you’re into a part-time gig that offers a steady income. Bearing in mind your monthly income, if you plan and budget for these expenses, you should be able to cover for them on your own, without begging your folks for money. Some of those expenses will differ every month, so when you’re planning a budget, ensure that you have factored in miscellaneous expenses as well.
3. Spend Wisely
Once you have a budget earmarked for your expenses, try to stick to it no matter what. This will help keep your unplanned expenses in check. The older you grow, the more your expenses will multiply. And while being able to afford what you always dreamt of buying may seem like a possibility now, it’s wise to keep off of it unless there is a real need for the purchase. If you have an add-on Credit Card, try not to incur expenses on it unless you can pay it off entirely by yourself. Outstanding payments on Credit Cards can be really expensive and you shouldn’t have to look to your parents for a bail-out.
Additional Reading: Tips To Prep Teens For Better Finance Habits In The Future
4. Save For It If You Really Want It
A good part of your teenage years will be spent on making goals for nearly every stage of your life- higher studies, career, marriage, etc. While you’re planning for these phases, don’t leave your financial goals out of the picture. It’s best to start early when it comes to establishing long-term goals. Be it your first car, your own house or being able to start your own business, start planning financially for these goals as early as you can.
5. Divide And Rule
If you’re at sea about how much money you should set aside for expenses and your personal financial goals, one easy way to go about it is to follow a 50/20/30 rule for your expenses. Contribute 50% of your net income to any fixed expenses, 20% towards savings, and the remaining 30% towards any form of leisure/recreational expenses. Sticking to a set rule will allow you to develop a disciplined approach towards your finances.
Additional Reading: Financial Incest And How It Can Affect Your Children
6. Bank Account
You should aim to have your own Savings Account by the time you turn an adult. Take the help of your parents to understand how a bank account works, what are the various fees and charges involved during transactions, how to withdraw cash from ATMs, how to write a cheque, etc. While you’re tracking your budget, deposit a portion of your savings every month into a bank account. Over time, this will add up to a big corpus for you that you can later dip into for your fees, college trips, and stuff that you may want to later buy.
7. Credit Cards
It might take a while before you have a Credit Card of your own, but if your parents have given you a supplementary Credit Card that they own, you must learn how to handle a Credit Card responsibly. Take your parents’ help to understand how Credit Cards work, interest rates, credit limit, etc. Go through your parents’ Credit Card statements and take their help to understand the billing period and the charges associated with it. Paying Credit Card bills in full and on time will positively affect your Credit Score – a number that will determine whether you will be able to get a loan for your house or car later in life.
Additional Reading: 6 Kickass Ways To Save For Your Growing Child’s Future
Once you’ve grasped the concept of budgeting and saving, move on to learning more about investments like Fixed Deposits, Mutual Funds, Recurring Deposits, etc. You might find it difficult to understand at first, but the sooner you start, the better it is for your financial future. Your parents might even open a small Fixed Deposit for you to help you understand how they work as a long-term saving option.
An 18-year-old is at a legally permissible age to to buy Life, Health, Vehicle and other insurance policies in their name but it would be too early for you as a pre-teen to purchase one. Since you won’t have any income or liabilities, you wouldn’t have much use for a Life Insurance policy. In case of Health Insurance, if your parents’ health cover doesn’t include you, it is a sound idea to consider buying a Health Insurance policy at an early age since the premium will be low at that stage.
Additional Reading: How To Help Your Children Understand Budgeting
10. Credit Score
At school, you’re graded for your performance in exams. The higher you score – the more rewarded you are. Credit Score follows the same logic. The better your score, the higher your chances are of getting a loan or a Credit Card in the future. Paying your Credit Card bills on time has a direct impact on your Credit Score. Knowing how Credit Score works will help you build a good credit history in the future.
11. PAN, Aadhaar And Passport
Once you turn 18, you will become legally eligible to carry out financial transactions. Your parent can help by ensuring that you apply for a PAN (Permanent Account Number) card, Aadhaar card, passport, and driver’s licence. You will need these documents at the time of opening a bank or demat account, investing in stocks or Mutual Funds, and at the time of filing tax returns. If you already have these documents in place but hold them jointly with your folks, you will need to update these documents in your own name with your signature and photos once you turn 18.
Additional Reading: Essential Credit Card Lessons For Your Child
12. Track Expenses
Tracking expenses and monitoring savings is a good habit to inculcate at a young age if you want to learn financial independence. Keep a track of where and how you spend your money each month. You will then be in a position to judge whether those expenses were actually worthwhile. This will also teach you to spend your money more wisely.
When you’re in your pre-teens, you may still have a whole lot of years ahead of you to plan for your future, but the earlier you start, the better it is. So, while you’re prepping for your career and life goals, don’t give your financial goals a miss.
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