Teen Finances: Getting Through the Iron Curtain

As a parent of a teenager, you might be feeling that you have enough to deal with just trying to get through the normal issues and problems that arise during the course of those often problematic years. Trying to teach teens about money and personal finances might just be adding another item to an already long list of lessons and formative subject matter you're trying to instill within him or her; but it's an important one to have on that list nonetheless.

We've all been there before, and probably remember just how stubborn and pig-headed we may have been when it came to listing to our parents during our teenage years. But looking back on it now, there's probably quite a few areas in which your parents gave advice that, while you may not have heeded it at the time, actually proved useful later in life. So while it might not seem like it now, your teens may thank you one day for much of the knowledge and information you are instilling (or drilling) into them now.

The following are a few of the things that my parents and grandparents instilled in me early in life that helped me gain a firm financial footing throughout my teen years and into my adulthood.

Compound Interest

The earlier kids can understand the concept of compound interest, the earlier and more usefully they'll be able to apply and utilize it to their advantage. It is important that they understand both the positive aspects as well as the dangers of compound interest.

My family taught me early on the power of compound interest beginning with a savings account at our local bank. As my savings grew, my education did as well through vehicles such as certificates of deposit and savings bonds. Opposing me as I entered college were items like credit cards and student loans that could have endangered my financial stability. However, my understanding of compound interest enabled me to see the inverse relationship involved, and understand that as easily as compound interest could make me money, it could remove that money just as easily.

The Dangers of Debt

Knowing the dangers of debt can help teens immensely when it comes to the success of their future financial lives should they be taught about it early on. By understanding how quickly debt can accumulate due to things like credit cards and superfluous shopping, educational related loans, and lack of restraint or due diligence when it comes to making major purchases, a teen can be better prepared for the dangerous effects of debt.

By letting teens tackle a little supervised debt occasionally as my parents did by having me pay for large portions of big ticket purchases like a car and my college education, they can learn the hardships that debt often brings with it but in an environment that won't leave them struggling on their own.

But with teens, it will likely take more than a warning or great example from mom or dad for them to see the light. By explaining how higher interest rates, only making minimum payments, and not making extra payments toward debt can greatly affect the growth or reduction of that debt over time, you may be able to better break through the mental barrier many teens try to put in place against the advice of mom and dad.

Open Their Eyes

In order to make your words of personal finance wisdom hit home a bit harder, you might have to take a few steps to open your teen's eyes. Because many teens have yet to deal with things such as property taxes, mortgages, homeowners insurance, utilities, health insurance costs, taxes, and various other items, they might not have a true understanding of just how much money these items can end up costing them each year.

Such items might seem like common knowledge to you, since you have probably been dealing with them for years on a regular basis. But to teens who have yet to purchase a home, own their own car, hold a steady job, do their own taxes, or invest in a 401k, it is often difficult for them to wrap their minds around some of these concepts.

I still remember when I first learned as a teen that my mother had to pay property taxes on our home every year. You buy clothing at the store -- you pay a one time tax. You buy a burger for lunch -- you pay a one time tax. You purchase a computer -- you pay a one time tax. So I just couldn't understand why, since she only bought the house once, she would have to pay taxes on it over and over again.

It was a shocking revelation to a teen that was inexperienced in the realm of homeownership and one that just didn't seem fair. However, it was a lesson that stuck with me and made me much more aware of just how much a home can cost over and above its asking price.

The Lesson of Financial Independence

Another lesson I learned early on, and one that may help your teen better appreciate the value of starting their personal finance education early in life, is that of financial independence. When a teen understands and appreciates the freedom that can come with a strong money saving ethic, it can strengthen his or her resolve to form good personal finance habits early in life.

Realizing that with increased personal finance knowledge also comes that ability to apply that knowledge in ways to allow more personal freedom can be a great awakening to a teen. Early on, I realized that you don't necessarily have to make a ton of money to realize financial freedom. It's how you make use of the money you do earn that can allow you more options when it comes to your lifestyle, traveling, the type of work or career you choose, as well as where and how you live.

Starting early, working hard, making smart decisions with your money, and then letting that money work for you can greatly enhance the options available to you later in life.

More From This Contributor:

Playing the "What if -- " Personal Finance Game

Money Saving Lessons Gleaned from Children's Stories

Don't Let Your Income Get You Down '" I Don't

Disclaimer:

The author is not a licensed financial professional. The information provided in this article is for informational purposes only and does not constitute legal or financial advice. For financial advice, readers should consult a licensed financial advisor. Any action taken by the reader due to the information provided in this article is at the reader's discretion.