Money Management for Teens
The teenage years should be thought of as a training period for adulthood. This is the time that they can make small mistakes with parental support to learn important life lessons before they’re out on their own and make huge mistakes that could have life altering affects. Part of being a responsible adult is managing money well, so it goes without saying that adults involved with teens – parents, teachers, coaches, etc. – should make an effort to teach and reinforce good money management skills. Blowing their allowance one month teaches a teenager some significant lessons about financial planning; whereas, not understanding money management when they’re on their own could lead them to bankruptcy.
Be a Good Role Model
What do your own spending habits teach the youth around you? Credit card debt and impulse buys do not go unnoticed by teenagers. When you are in a store, do you announce, “I need this!” when looking at an item that clearly is a ‘want’ not a ‘need’?
The top excuse teens give that something is a need is “everyone has one but me”. Advertising and other media reinforce this viewpoint. Parents, in particular, must not fall into this trap. Talk to teenagers about your money decisions. Explain the difference between a want and a need, the benefits of thriftiness, and how you budget. If you, as a parent, see something that you would like but know you don’t have the money for, talk to your teen about how you are going to make a plan for saving the money to purchase the item.
Make sure you are modeling thoughtful purchases. Because teens ‘go shopping’ to hang out with friends, they tend to purchase things they don’t need and didn’t even want before they saw it. They have little impulse control to begin with, but the peer reinforcement on mall trips adds to the problem. This is a bad habit. Suggest the teen gives herself one day to think before she purchases any item. She is more than welcome to buy whatever items she wants… tomorrow. Generally, she will get over the impulse by the next day and save the money.
Help Teens Set Money Goals
A money goal is a wonderful motivator for a teen to save for a desired item or to create a savings for the future. When we look forward to getting something we want, make a plan to get it and then work toward obtaining that goal, we learn important personal values like patience, perseverance, a strong work ethic and decisiveness.
When your teenager has set a money goal, like saving enough for his own television or video game, and then has earned the money, saved it, then bought his prize, you should be there to congratulate him on his good work.
Teach Teens to Budget
There are two different methods you can use to help a teen learn how to budget, which is a crucial life skill for them to develop before leaving their childhood home. You can give them a portion of the family budget to manage, or you can give them control of the money that is used for their expenses.
- Give them a portion of the family budget to manage. Don’t stress teens out with your own financial worries, but it is good to share with them the realities of expenses. You can give them a particular item of the budget, such as groceries or the family’s vacation budget, to manage. You can also have your teen help when it is time to pay the monthly bills. With little life experience, an adolescent has no understanding of how much it costs to pay for rent, car insurance, car maintenance, and other critical needs. They neglect researching a desired item to discover the total cost, for example, not realizing that they must add to the cost of a car all of the taxes, insurance, title fees, etc. By explaining the expenses of your household, you are providing the teen a real world understanding. Plus, by going through the monthly process of paying bills, he will learn how to meet financial responsibility in an organized fashion.
- Give them control of the money used for their expenses. This process provides teens a real world example of how to manage funds in a way that impacts them personally. First, the parent should determine which expenses will be the teen’s responsibility. For example, your teen could be responsible for paying their school lunch, their weekly entertainment, their clothing budget and/or their subscriptions to clubs or magazines. Determine the normal cost of each item and add those up to be your base amount. Add whatever amount you would like to as an “allowance” for a total amount you will give your teen each week or every two weeks. Help your teen set up a budget and then leave them to figure out how to manage their money. Do not bail them out when they overspend on the “cool” jacket and don’t have enough money left to go to the movies with their friends – that’s the life lesson!
Adolescents tend to spend what they have right away thinking they will get more when they need more. If they need additional money for a purchase, teens even try to take out loans (an advance on their allowance from mom and dad) so that they can buy the desired item now. Try teaching a teen to write a plan with money goals. They need to learn the process of figuring out how much income they will receive, what their ongoing expenses are, and saving the remaining amount. Developing a budget isn’t a skill that adolescents will just understand – it must be taught, and budgeting is not a subject at school.