How to Teach Teens the Value of a Dollar

 

  1. Every time you make a purchase with a card, you are taking out a loan.
  2. There is a high price for this loan; it's called interest. If you make minimum payments, you will take almost eight years to repay a $1,000 purchase on a card charging 18 percent interest.
  3. The only way to avoid interest is to pay the full balance each month. Except for true emergencies, that's what should happen.
  4. One credit card is enough.

Start your teen off with a debit card on his checking account or a second card on your own account.

 

Manage a Paycheck

Teens learn a lot about responsibility and independence by holding down a job. They also see how taxes shrink their take-home pay and how many hours of work it takes to buy a car or a new outfit. Just be careful it isn't too much of a good thing. School should be the first priority, so put a limit (say, 10 to 20 hours a week) on outside work.

Save and Invest Wisely

When it comes to investing, teens have a huge advantage over their parents: time. The magic of compounding is dramatic when you start saving young. A 15-year old who invests $2,000 a year in a Roth IRA for just 5 years (until age19) will have almost $1 million tax-free at age 65.

Diversified no-load mutual funds, such as the Vanguard Total Stock Market Index, are great choices for Roth IRAs. T. Rowe Price will allow you to start an account for $50 a month.

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