Creating a Financially Responsible Teen
One of the most important skills we can instill in teenagers before they head to the “real world” is financial wisdom. Teens must understand how much things cost, how credit works, how to budget, how to save, and the ability to make wise decisions about their finances. Schools do not teach adolescents about these things, so parents must teach and role model good financial sense. Here’s how:
Use Life Examples to Discuss Money
Parents should look for opportunities to discuss money sense with their teens. Using real life to highlight possible lessons speaks more clearly to teens than a parental lecture. For example, if teens never know that parents must budget and sacrifice to manage the household, they will never learn how to make financial choices. While parents should not burden their teens with money worries, discussing money and financial decisions will prepare them for their future. For example:
- Make them part of the conversation about how much the basic package for cable TV costs versus premium, and how you’re balancing pros and cons and costs before making a decision.
- When you receive a credit card offer in the mail, show it to your teen and discuss the pros and cons of credit cards.
- When you make a big purchase, such as a car, explain the loan process and show how much everything costs.
- Share your dreams. If you really want a new couch or a vacation to the Caribbean, explain what you are doing to save for that dream. Parents should make it clear what they are sacrificing to achieve their financial goal and explain their choice to pay for it instead of using a credit card to charge it. This helps teenagers understand the time and effort required to save, the joy of achieving the goal, and the importance of tempering spending so that you avoid debt.
- When a store catalog comes in the mail, let your teenager identify items he or she likes. Then, separate those things into two columns: ‘needs’ and ‘wants.’ Discuss how you must meet needs before you can consider wants.
- When you see ads on television, talk about advertising. Ask your teen who he/she thinks the company is trying to reach with the ad and what motivators the company is using. Ask your teen which ads are most effective on him/her, why, and how they can protect themselves from the media pull.
- Occasionally, have your teen pay the bills with you. This will help teenagers understand how much mortgages, car loans, utilities, and insurance cost. They will also learn how to write checks, use online payments, and pay bills responsibly in an organized fashion.
Teach Share, Save, Spend
When parents give an allowance to a younger teen or tween, parents should teach them about the three things they can do with their money:
- Share their money. Sharing money means your tween takes a percentage of their allowance and gives it to their church or favorite charity. Children really like to feel that they are making a difference in the world, and this will help them improve their self-worth, reduce selfishness, and teach them good financial sense.
- Save their money. Have your teen open their own savings account and set a savings goal.
- Spend their money. Later in this blog, we will discuss letting teens make their own spending choices.
Together, parents and child should decide what percentage of each dollar the tween receives to share, save and spend. Then, parents should have teens stick to that percentage as they manage their income.
Give Teens the Chance to Budget
Teens must learn the process of figuring out how much income they will receive, what their ongoing expenses are, and saving the remaining amount. Budgeting is a crucial life skill, and nothing teaches it better than real life practice. When something fun, but expensive, is coming your family’s way, ask your teen to create the budget. For example, if your family decides to purchase a new pet, your teen can work out the initial expenses and the ongoing costs of the animal. Or, the next time your family is going on vacation, ask your teen to create the itinerary and budget for one day of the trip – they must decide what to do, research how to get there, and, of course, budget the expenses. Have your teen determine his/her priorities for spending during the vacation day, such as purchasing souvenirs versus touring the museum, and then, have him/her research how much each of these priorities will cost. Subtract these things from the total amount you’re willing to spend for that day. If it doesn’t seem like enough, encourage your teen to reprioritize or earn additional money before the trip.
Let Teens Make Spending Choices
When teens are given control of the money that is used for their expenses, they learn financial responsibility. Especially with this era of credit cards, children can think that there is an endless supply of money. Forcing a teen to budget for both short- and long-term spending choices takes time and patience, but it is well worth the effort.
Parents should have their teens open a spending account. Each month, parents should deposit an amount of money that is enough to cover the teen’s expenses (e.g., lessons or extracurricular activities, car insurance, lunch money, etc.). Your teenager is now responsible for making a budget, writing checks for expenses on time, and making their own spending choices. This experience will teach teens the dollar amount of those expenses, when bills come due, and consequences of late payments.
No matter how painful it is for a parent to watch, do not bail your teen out when they screw up. This is the time that teens 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. 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 to bankruptcy.
And don’t forget that positive reinforcement is a powerful motivator. When your teenager covers all of their expenses during the month with money to spare, praise his/her efforts. When your teen sets a goal and then, earns and saves enough for it, congratulate him/her for the good work.
Encourage Teens To Work
According to a 2011 Charles Schwab study, teenagers who have paying jobs are 40% more likely than kids who don’t to be “stellar savers” versus “quick spenders.” Even working just a few hours a week in the summer can offer important practical money management experience. Working to earn money and then making choices to spend it is an invaluable life lesson. Many parents discover that their adolescents are more cautious with their own earnings than with money parents just give them.