When your teenager gets their first job you want to fill their head with all the knowledge you have on managing budgets, investing, buying a house, paying taxes and the list goes on! So, how do you teach them what you’ve learned in the last 30+ years? We are here to help! Read our top 6 financial tips for teenagers.
We released a blog a while ago on teaching kids about pocket money from an early age, but this is very different. There is a level of independence that comes with earning your own wage, finishing school or university and having to manage your own money.
Gen Z kids also want to forge their own paths. So, here’s a few money tips for teens on 6 different topics that may assist in them gaining knowledge and independence.
Employment and Taxes
There are a few certainties in life and one of them is that you need to pay tax. There are tax services around now that allow for lodgement direct with the ATO that are simple to use. You’ll need to apply for a tax file number prior to them getting their first job and it’s good to have a tax agent on your team early in the game. Lodgements with One Click Life start at $29 and advice is free. Starting an account early gives you the peace of mind that they have support when lodging their tax return.
Money in, Money out
Managing a wage is an important life skill. Whether it’s casual hours or a few dollars from a side hustle, how the small amounts are managed shapes the way the larger amounts are managed. This is something you can sit down and work through or again direct them to a suitable website that provides the ability to hook banking directly into the site for ease of money management.
One of the easiest to understand money tips for teens is to manage their wage is using the three bucket strategy: Fixed, Fun, Future;
- They will need one bucket of money for fixed living costs – maintaining and running a car, clothes, phone bill, food.
- They then have a second bucket for Fun – going out with mates, holidays, new tech equipment, new adventure equipment.
- Lastly, a third bucket for the future where they’re saving for bigger purchases like a house or car.
Establishing this type of bucket strategy early will set them in good stead as their income eventually rises.
Commencing setting money aside for the future is an important lesson. There are sites now that allow for micro-investing. Setting aside small regular amounts that buy a percentage of an investment allowing access to the market for people with small balances and small regular top ups of their investment. Check out sites like Raiz Invest and others that allow for this type of investing. This creates a more interactive way to save for your first house than watching a bank account take two steps forward, one step backwards due to its accessibility. As a parent, you can open an account on their behalf early in their life and hand it over with investments already making them money at an appropriate time.
With the price of houses on the rise, we’re all worried about how long it will take our kids to be able to afford the deposit on their first house. There’s a lot of talk about the bank of Mum and Dad funding their first purchase. There are now websites that can make this “loan” official and your kids can then treat it as a genuine loan with repayments commencing now, or in the future and not as a gift that they may or may not get round to repaying. They still allow you to decide if you’d like it to be a gift in the future. Alternatively, a lawyer could provide the service of drawing up documents.
When you’re a teenager retirement seems so far away that your kids might not even give their superannuation another thought. As we all know, it is very important and it’s a great nest egg to unlock in later life. Getting the right fund and the right advice early is important. The problem is the cost benefit analysis of advice doesn’t necessarily stack up. Forrest Private Wealth can assist with this. At this age there is a long runway of time in the market and returns matter.
Managing Risk and Insurances
What insurances does a teenager need? This is always a topic that relates to individual circumstances. Life insurance – maybe depending on other factors. Income protection insurance – probably not unless they are working full time and / or taking out debt to fund buying tools of their trade. Insurance provided by Mum and Dad – absolutely! Generally, most parents will have a life policy on their kids that can convert to them at a certain age. As your kids are in that quasi-dependent phase, you are effectively their income protection policy. Naturally it comes down to individual circumstances but in most cases we see, adult children will take out their own policies on a major event occurring like moving out of home, buying their own house or taking a gap year overseas. It is an important conversation to have however and we’d recommend having the conversation and educating.
Important to know that we’re always here to help. We can provide advice and solutions in some cases to assist in the education and ongoing advice for your kids. Reach out to your financial advisor for help on any topic.