Set your teen ahead of the curve financially

As your teen prepares to launch into the world, you want to give them the best start you can. Teaching a teenager to manage money responsibly is one of the most important things a parent can do. Lessons in money management can last a lifetime.

But how do you teach a teenager to manage money when you can’t even get them to throw their laundry in the hamper? The key is to start small and let them gradually take on more financial responsibility.

Step 1: Start with a savings account

The sooner your teen opens a savings account and gets in the habit of socking away money, the better.

If you’ve already been contributing to a savings account for your child, you might want to get a separate one for them to control so they can practice depositing funds, making withdrawals and watching their money grow. Help your teen set both long-term and short-term savings goals. Start with an emergency fund and work together to establish guidelines on when and how they should spend their savings.

Play your cards right and your teen will develop good saving habits while also building up a nice reserve fund.

Step 2: Open a checking account

Your checking account is your financial home base. It’s how you pay your bills, make purchases and keep your life humming along. It’s also a low-risk way to teach your teen the basics of money management.

Help your teen shop around for a checking account with no monthly fees or minimum balance requirement. Show them how to write checks, track their spending and maintain a positive balance. Make sure they understand the difference between a debit card, which draws from the funds they’ve already deposited and a credit card, which borrows money they don’t have yet.

Once your teen demonstrates proficiency with a checking account, you might want to let them take on a small, low-risk monthly bill, such as a subscription to their favorite game or online service, so they can practice paying on time and ensure that they have enough funds to cover their financial obligations.

Step 3: Build some credit

Establishing credit is one of the biggest obstacles young adults face when getting started financially and parental help can make it much easier.

Although there are several ways to help your teen build credit, they typically involve some level of risk on your part. Consider carefully before putting your own credit on the line. Is your teen mature enough to handle the responsibility? Are they able to maintain an emergency fund and keep a checking account in the black? Have they demonstrated the ability to keep up on a monthly bill?

If the answer is yes, start by talking with your teen about how interest works, their responsibility to repay borrowed money and how to use credit responsibly. Then you might want to consider:

Give your teen ownership of a recurring bill. Taking over a utility payment or cell phone bill allows your teen to establish a payment history, even if you’re supplementing the payment. It’s a bit riskier, since late or missed payments can impact your credit, but you can easily keep an eye on how your teen is doing and resolve any issues before they become crises.

Co-sign on a loan. When your teen is ready to buy his or her first vehicle or take out a student loan to pay for higher education, consider co-signing on a loan. That means, however, you’re putting your credit at risk, so make sure they’re ready to shoulder the responsibility of a loan payment — and keep an open line of communication so you can step in if needed.

You know your teen better than anyone so work with your teen to gauge how much responsibility they can handle. By following these steps, your teen will have the basic tools and foundational skills they need to manage their own finances.