10 vital money lessons for teens

By Bankrate.com

When it comes to financial literacy, today's graduates fail to make the grade.

Asked about basic financial concepts, high school seniors correctly answered only 48% of the questions, on average, down from 52% in 2006, according to the Jump$tart Coalition's recent survey on financial literacy.

College students didn't fare much better, with seniors scoring an average of 65% on a separate survey that was administered for the first time in 2008.

Why do so many miss the mark? It starts in the home. Whether parents lack confidence in their own money-management skills or assume their children's schools will cover it, many parents don't talk about money with their kids, and those who do often miss the fundamentals.

"A lot of the basic stuff is overlooked by parents just because they assume that their kids know it, and they don't," says Janet Bodnar, the author of "Raising Money Smart Kids."

"Why would they? Unless you tell them, there is no reason they would know that your family insurance bill is going up by $1,000 a year just because they start to drive."

Before your kids the nest, boost their financial literacy with these 10 money-management lessons:

Balance a checkbook

Of the high school seniors surveyed, only 45% had a checking account, while 25% had no bank account. Once they leave home and set up accounts on their own, those without parental training often make costly mistakes. About 30% of college students said they had bounced a check.

As soon as a teenager starts earning money from a job, it's time to open a checking account, even if it's a joint account with a parent, says consumer adviser Clark Howard, the author of "Clark Smart Parents, Clark Smart Kids." Teach your teen how to write checks, use a register and reconcile the account with bank statements.

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Mistakes will happen, so look for kid-friendly options, such as accounts that charge teens lower overdraft fees. And though Howard refers to them as "piece-of-trash fake Visas" on his radio show, debit cards are a good choice for teenagers, he concedes. Because there's a finite amount of money they can tap, debit cards are like training wheels for credit cards.

Budget money

More than a third of the college students surveyed had paid a credit card bill late, and though some just forgot to pay, others put off writing a check because they ran out of money.

Start teaching your kids how to budget their money as soon as they bring home their first paychecks. With no value judgments, sit down with your children and ask them what they plan to do with their money. Once you know their goals, whether it's buying a car or an iPod, you can talk about what they will need to do to get there.

"Priorities are good because you teach the concept of finiteness," Howard says. "There's only so much money."

Before your children go away to school, have them set up a budget for expenses. It will increase their awareness about money flows, incoming and outgoing. After graduation, show your children how to make a household budget. Using the starting salary of their chosen profession as a guide, have them calculate their after-tax income and then figure out how much they can afford to pay for the basics, such as rent, food, utilities, insurance and transportation, as well as vacations and entertainment.

Finance college

Don't forget to factor student loan payments into the monthly budget. Of the college students surveyed, two-thirds carry some student loan debt, with 70% of those students shouldering $10,000 or more. (See "An insider's guide to student loans.")

Continued: Make a joint plan

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