Having a serious talk about money with your teen can be as dreaded as the unavoidable sex-education lecture... well almost. Teaching your teen about financial planning can be a painless experience if you go about it in the right way. A simple common sense approach often goes a lot further than trying to introduce complex money management principles that may seem abstract.

The following tips will ensure that your financial planning lesson will be well received and the pearls of wisdom actually put into practice.

The Age Old Battle of Needs versus Wants

Teenagers are prime candidates for understanding the dilemma of needs versus wants because they are past the age of reasoning and can distinguish when something is not necessary, but they are still not adults and so may be more vulnerable to craving. Modern day culture fuels the idea of instant gratification and no longer values the patience and merit of waiting. Financial planning is the perfect opportunity to instill a counter value system, because you can show the benefit of saving for an item in terms of the interest saved.

Highlight the Importance of Budgeting

Budgeting plays a role in the success of financial planning. A budget lays out all the income and sets them off against the expenses and the difference can be targeted for saving. Eventually, you can show your teen that putting aside some money for savings even before expenses is a great way to ensure savings targets are met. Let your teen sit with you while you prepare the household budget and have them help you juggle the allocations so they can get a feel for what it is like.

Goal Setting is Fundamental

Goals are the most important part of the entire exercise because without them everything is meaningless. When your teen has something to save towards, saving becomes more than just 'money that they can't touch', it represents some future achievement. It shouldn't matter if they want to save towards buying a video game or a car; the important thing is that they learn to tie their savings targets to real life goals.

Unleash the Power of Compound Interest

The one thing that teenagers have on their side, besides a spotless credit record, is time. If they can be taught to leverage this amazing asset early on their actions can have a major impact on their future financial position. Let them look at the compound interest tables available on the internet to calculate the value of a sum of money if they start at 16 as opposed to if they waited until they were 21. The difference may just shock them into saving.

Teens, especially those that are already earning an income should be exposed to some financial planning tips. The lessons they learn now will shape the financial decisions they make in the future.

Learn more about this author, Natalia Jones.
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