We are on the cusp of summer break, which means many teens, grads, and college students will be starting up their summer jobs. Whether they’re nannying, mowing lawns, spinning pies at the local pizza joint, or interning at a law firm, the goal is to gain real life job experience, and of course, make whatever money they can before school starts up again in the fall.
This brings us to an important point. Money. Have you equipped your teen with the financial know-how they need to succeed in the real world (and avoid major financial pit falls)? Many parents assume their kids are learning personal finance at school, but unfortunately, many schools assume the students are learning it at home! It’s a crucial topic that all too often falls through the cracks. And, guess who loses?
As your teen embarks on their summer job, use this as a launch pad to build their financial literacy. The principles of wise financial management aren’t that tough to master. You simply need to know the basics and abide by the disciplines and key principles. One way to approach it is to teach them how to avoid these eight most common financial mistakes:
- failure to set goals and plan/save for major purchases (instead, many load their credit cards with debt, making their items that much more expensive)
- failure to set aside an emergency fund for unforeseen expenses
- spending more than you earn and failing to budget and monitor expenses (a top learning priority!)
- incurring too much debt, including student loans and excessive credit card usage
- incurring significant fixed expenses relative to your income that can’t be reduced in difficult economic times (e.g., spending too much on housing and cars)
- impulse buying and lack of value consciousness when shopping (make, and stick to, your shopping list beforehand!)
- failure to begin saving and investing for the future as soon as possible (and missing out on the compounding of money over long periods of time)
- failure to appreciate how the little things can add up (e.g., eating out versus in, paying up for name brands, owning a dog or cat)
(Number 6 is an especially common pitfall among young people when working a summer job. They aren’t used to having a surplus of money in their checking account, so they go on spending sprees and end up saving much less than they could. A good rule to learn, especially at this time of life, is save first, spend on “needs” second, and IF there is money left over, enjoy some “wants.”)
This list isn’t just for young people—it’s for everyone. Periodically review how you’re doing in each of these areas, and encourage the young adults in your life to do the same. (Remember, they’re watching you, so be sure to “walk the talk!”) If we can successfully avoid these traps, we’ll ALL be in better financial shape!