Does your teen make the grade when it comes to managing finances? Or is a crash course in "Financial Responsibility 101" needed? When educating teens about financial skills critical for their future, it's important that parents explain the dollars and sense of the process. Teaching teens how money works and the responsibility that comes with the territory can help them earn an A+ in managing finances.

There are many ways parents can educate their kids about the basics of money. Starting early is key. It makes sense to teach them the value of good spending habits at a young age and then gradually increase their financial responsibility. The following are a few steps parents can take to move their children to the head of the financial class.

• Encourage a savings plan. Opening a savings account offers children a glimpse at how money can grow. Whether your child receives a paycheck, earns an allowance, or collects birthday money, it's important for him or her to learn how to save. You may want to take the time to explain the value of saving, as well as describe financial terms such as compounding and interest.
  
  
• Establish a checking account. Once teens understand the importance of saving, introduce the responsibility of a checking account. Educate your child on how to write and record checks, balance a checkbook, and read a bank statement. Look for banks that offer free checking accounts and assistance in teaching teens the basics of maintaining their account.
  
  
• Consider a debit card. After your teen proves he or she can handle a checking account responsibly, you might consider "graduating" them to a debit card. This will encourage teens to keep track of their expenses and learn from their spending choices. Take time to talk to your teen about wise spending habits.
  
  
• Sign up for a credit card. At some point in the later teen years, your child may be ready for a credit card. The best way to encourage responsibility is to establish a spending limit. Make sure your teen understands what items are acceptable to charge and the importance of paying the balance in full every statement period to avoid interest charges. If you're uncomfortable giving your teen sole responsibility of the credit card, consider a joint card. This allows parents the authority to monitor their kids' purchases and intervene when guidance is necessary.
  
  
• Talk about loans. As your teen starts to consider attending college or purchasing a new car, teach him or her about the different ways to finance big-ticket items, such as taking out a loan. It's important to involve children in the loan process and teach them how it works. Encourage them to research different loans, compare rates, and even identify possible incentives.

Teens learn by example. Perhaps the best way to teach your kids a lesson in managing their finances is to model good fiscal behavior yourself. You might consider sharing your own successful habits and experiences with your teens to help them gain financial independence. TPW