Talk openly with teens about money

It's a very good idea to talk openly to teens about money because this is a method of coaching and mentoring them as it pertains to money and how it works. When you talk openly with teens you help them to understand the misconceptions and the myths about money. They then begin to understand the important laws of money such as compound interest and why it is important to start to save early.

Just to give you an example, if you at the age of 25 begin to save $50 per month until you are 65 years old you will have saved $24,000 without any interest. Now let's assume you save $50 per month starting at age 25 until you hit 65 years of age but this time the money you are saving is subject to an interest rate of 4%. Your money is now $59,295 instead of $24,000, what a difference this makes.

Lets look at another example. If a person at the age of 25 begins to save $100 per month until the age of 65 they will have accumulated $48,000 with no interest. Let's assume using the above example that they now receive interest of 12% on that money by the time they reach 65 they will have accumulated $1,188,242 in savings. This is because of compound interest. You are actually earning interest on your interest.

These examples above are only hypothetical and they certainly don't take into effect the impact of taxes. Teenagers should know that there are certainly some risks involved when you start investing your money depending upon the type of saving or investing vehicles you use. However when you start young and you are looking at the long term it usually works out in your favor. Certainly there will be some ups and downs when it comes to your money.

You are not guaranteed a profit when you invest on a regular basis and your principal balance could fluctuate up and down depending on the economic conditions which could cause you to lose your initial principal balance.

Teenagers should be warned also about the dangers of credit cards because if they incur too much credit card debt it will limit their ability to save and invest for their future. If you become over burdened with debt it can cause you to incur some past due debts which will cost you money in the long run.

As young adults teenagers will begin to get a lot of credit card offers from various companies. The best practice is to talk about it with your parents and understand that only one credit card is needed to help you establish credit. Once you purchase something pay your balance in full. Oft times when you pay on time for a long period of time the credit card company will increase your line of credit when will tempt you to make additional purchases up to that line of credit.

Resist the temptation to because this is how you are slowly pulled into the system of credit cards. It all starts very innocent and as time goes on, if you are not on guard you will begin to incur a mountain of credit card . Your life is now dependent upon credit card debt.

Learn more about this author, Melvin Richardson.
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