college

10 tips to raising money-savvy teens

5. Identify wants vs. needs 

Because some teenagers think of credit cards as free money, remind them that when they charge something, they're taking out a loan that must be repaid. As such, they should only use credit cards to meet their needs, not their wants. Some 11 percent of high schoolers surveyed thought it was OK to borrow against future income to go on vacation or buy sale-priced clothing.

"Kids need to understand the many factors you consider when you make a financial decision," says Brette Sember, author of "The Everything Kids' Money Book."

"It just looks too easy to a child when you make the purchase -- they don't see all the thinking you've done to get you to the point where you do whip out the plastic," Sember says.

6. Deal with debt 

Whether they racked up debt buying pizza and beer or charging car repairs, a third of college students surveyed have an outstanding balance of $1,000 or more on their credit cards, and half carry a balance some or all of the time.

While paying the minimum looks like the easy way out, plug the numbers to find out the true cost of debt. Assuming they charge nothing else, it'll take nearly 22 years and over $4,100 in interest to pay off a $3,000 credit card balance with an 18 percent interest rate if they only pay the minimum.

"It's a real eye-opener," says Bodnar, who is also the author of Kiplinger's Money-Smart Kids column. "It does a lot more than even lecturing kids on credit because they might forget the lecture, but they will remember this."

7. Pay taxes 

Of the college students surveyed, only a third prepare their own taxes, leaving the vast majority ignorant of the basics. A mere 39 percent knew that interest earned from a savings account is taxable, while less than half understood that when your salary doubles, your taxes double, at least.

Starting with the first paycheck, sit down with teens and explain what's on the stub, showing them where their money goes. To estimate withholding on a higher salary, use the 25 percent rule: 10 percent for federal taxes, 10 percent for Social Security and Medicare, and 5 percent for state taxes.

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When it's time to file a tax return, don't do it for them. Teach them the ins and outs of the system by making them an active part of the process, from tracking down receipts and W-2s to doing the calculations.

8. Consider all costs 

For many teens, buying a car is their first major investment. But few understand the true cost of ownership, and they often leave expenses such as maintenance, repairs, gas and insurance out of their savings plan.

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