by Nathan Perkins

Created on: July 24, 2011   Last Updated: July 29, 2011

Teaching teens financial responsibility is a vital part of helping them gain their independence.  There is going to be a day when teens will earn their own paycheck and will pay their own bills. 

You can help them learn the best ways to financial success and here are some tips on what to teach:

1.  Debt

When you use credit, you pay for the product the credit purchased and you pay for the credit.  Credit can potentially cost you ten times more then the product it was used to purchase.  Borrowed money that is not paid in full before the interest is incurred will be charged interest again.  If you pay only the minimum, the amount you owe will grow on its own.  Interest can compile.  That means interest piles on top of interest.

Companies that want to make money selling credit do not really want the information that clear.  They prefer to have you pay them interest.  They like it more if you pay interest on top of old interest. 

Teach your teen financial responsibility, because a teen is an apt target for these tactics.  Companies sell credit by suggesting that a person can buy anything they want, whether they have the money to pay for it or not.   They teach that credit is good and common but fail to mention that it is dangerous and its use is potentially reckless.  This is why it is important for you to teach your teen the pitfalls of credit.

Now teaching a teen how to use credit safely is sticky business.  To give a child a credit card has dangers.  There are some ways to teach them credit before helping them get a card.  We often ask our children if we can borrow money.  They suggest an interest rate.  We negotiate with them, usually mentioning that they will want to borrow from us some day and we will be partially establishing the interest rate standard during our current deal.  Doing this they learn about loaning money and how they can earn money loaning money.

It is also common for them to ask me for money.  When they do, remind them that they will have to pay interest.  Set a rate and talk about when that rate will compile and when they pay back they realize how much the interest cost and they learn about how interest works. 

If you do this, be tough about it.  They need to understand that a bank will not let them off the hook when they can’t pay.  Instead, the banks will celebrate the extra

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