5 Smart Financial Moves for Teens

This post was featured at anja merret, Confessions of a Novice, and The Skilled Investor.

It hasn't been long since I was a teen. Now that I'm an 'adult,' there are many things I wish I had known and done during my high school years, particularly when it comes to money. Not only would starting then have given me precious time to sock away and grow the money I had, it would have given me invaluable practice for when I had more serious cash and obligations to deal with. Smart teens will take advantage of this time and make these smart money moves:

1. Learn the value of a dollar. This does not mean knowing that a dollar is worth 100 pennies. It means knowing what a dollar will buy, what it takes to earn money, and how to get the most from the money you earn and keep. This is the most essential step in becoming financially successful. Teens with no concept of the power of money are unable to make good decisions about what to do with it. A great way for teens to learn this is by getting a job and/or having to pay for things on their own. This will quickly teach them about the 'real world' of money.

2. Learn to save. This goes hand in hand with learning the value of money. Regularly saving money is a vital part of finances that seems to be going out of style here in America. Teens today must learn to save if they are to ever be financially stable. Whether a teen has a job or gets an allowance, they should be encouraged to save a set amount of all their income. When the time comes to make a purchase larger than a $15 DVD, she will be proud that she was able to buy it on her own.

3. Get a savings and checking account. This is the place to hold those regular savings. The purpose isn't so much to protect or grow assets, as it is to teach teens about how money moves around in the world, and how to keep track of it. It can also be the first lesson in investment as they learn that money can make more money, but not if it's sitting in a can on your dresser.

4. Get a credit card and learn how it works. Credit cards are a way of life these days. No teen should be deprived of the opportunity to use one while still under the watchful eye of an adult. Many naive college freshmen have racked up serious debt because they used their first credit card without a clue.

Teens would be wise to get a card with a low limit, make affordable purchases, and always pay off the balance due each month. This will help them to understand that credit cards are for building credit and protection of transactions, not for purchasing things you don't have enough money to buy. They will also quickly learn the consequences of late payments, as well as high interest rates, should they choose to only pay the minimum payment.

5. Get a Roth IRA and learn the basics of investing. Although teens may give you a glossed-over look when you say 'retirement,' learning to plan for their financial future while they are young is a very smart thing to do. They have the most important financial ally on their side: time. Learning about risk, the power of compounding, the plethora of investment options available and more will start teens down the right financial path early.

Consider opening a Roth IRA for a teen with a job. This will give them the chance to practice what they have learned about investing, and their little nest egg will grow tax-free over the next decade. Parents can give their kids an even greater advantage by funding part of their teen's Roth IRA, as well: match the amount the teen earned, or up to $5000, whichever is less.

Teens can really make some smart financial moves when given the guidance and opportunity to do so. Even if they roll their eyes about 'financial responsibility,' they will surely show some excitement at watching their money grow.