Let me tell you a story.
When I first got to college, intoxicated by the freedom of living on campus, away from my parents, and finally being in charge of my own life, I felt that I was mature and worldly. During the first few days on campus, there was a fair where vendors offered their services to newly minted college students. Among the vendors were representatives of credit card companies. I signed up for a few cards without a second thought given to the high-interest rate that they carried (close to 25% annually, if I remember correctly). In a very short time, paying only the monthly minimums on purchases that I shouldnât have been making in the first place (because I couldnât afford them), my interest was higher than my original spending, and it took me years to pay off the balance of those high-interest credit cards.
Remembering this experience, I always wondered why financial education, including such basics as to how credit cards actually work and how to budget in order to avoid financial debt, isnât taught in high school. Now that my kids are teenagers, I want to make sure they learn how to avoid financial pitfalls once theyâre living on their own.
They probably donât know it yet, but one of the greatest things about being a teen is the complete and total freedom from financial burden and stress. As teens, their biggest worries are more along the lines of âI better stop gaming to get started on my homework,â or âDid I clean up my room after Mom or Dad asked?â Most children are blissfully ignorant of real-life stressors such as getting the mortgage paid on time or having enough money saved for car repairs.
There is no doubt that money will fluctuate in and out throughout their lifetime, but wouldnât it be nice for them to be educated to make sound financial decisions earlier in life? Teaching your children about managing their money will not always be easy, but if you want your teen to be financially successful and independent in the future, it will be worth it.
Here are some tips to give your teens the head start you wish you had and help set them up for a sound financial future.
1. Give Compensations, Not Allowances
Teens need to know the difference between money given and money earned. Assigning chores around the house is a good way to achieve this. Together you can decide what theyâre going to do, in what time frame, and for how much money. Make sure they deliver on what you agreed upon and hold them accountable. When they have to work for something, it gives them a sense of accomplishment and responsibility. If they become accustomed to earning money in exchange for their personal efforts, teens would be more careful with how they spend their money and much better prepared to make a living later in life.
2. Stress the Importance of Having Savings
As adults, we are all too familiar with the unexpected expenses that seem to come up out of the blue. These adult expenses are usually pretty lofty and can deplete saving accounts very quickly. Teens do not get to feel these types of burdens at their age. They do, however, have their own set of priorities that require savings. The newest video game may be coming out soon, or the new pair of celebrity sneaker collab just released online. Whatever your teen finds important, stress the importance of having their own savings to pay for what they want rather than asking parents for money. Remind them that it takes time and discipline to save up for big-ticket items.Â
3. Budget Planning
Something teens should know about budget planning is that a budget is a living thing. It is constantly changing with the various stages of their life, and they should not expect it to stay the same over time. Here is a great overview of
Itâs important to teach your teens the three major components of managing a budget:
1) Saving - Set goals with your teens that encourage them to save money. Giving them something to work towards will motivate them to keep saving. Having a goal in mind will also introduce a time frame to accomplish that goal.
2)Â Â Spending - Show your teens the importance of managing their expenses and being aware of what they spend money on. Make sure to identify each expense category - food, clothes, car, school, etc. Emphasize the importance of sticking to that plan and not overspending.
3)Â Â Sharing - You do not want your teens to become greedy with their money, so encourage the act of giving. They could start donating to local charities in their own community or to a charitable cause they personally care about. Giving will teach them the importance of sharing with those in need and using their own resources to help others.Â
Here is a quick video to provide an overview and get you started (with a caveat that for teens the ratio of Spending vs Saving should probably be flipped to 20% Spending and 70% Saving, as most of their expenses are still being paid by parents). A fun way to learn the three budgeting habits discussed above is by setting up money jars. Make individual jars for Saving, Spending, and Sharing. Be sure to label each one and use actual money. The money jars will help kids see the progress they are making and where the money is going.
4. Open Their Own Bank AccountÂ
As your child becomes a teenager, itâs a good idea to open a bank account on their behalf, if they donât already have one. Explain to them that having a bank account comes with responsibility. Have them be part of the process to learn how to open bank accounts on their own one day.
In doing something as simple as opening a bank account, your teens will learn about:
- Understanding monthly bank statements
- Tracking expenses and savings
- Paying bills
- Managing a debit card
- Writing checks
You, the parent, might even decide to contribute to the account for a long-term saving goal such as college tuition or a car when your teen is old enough to drive.Â
5. Give Them Opportunities to Earn MoreÂ
Weâve already established that doing chores around the house is an excellent way for your kids to start earning some of their own money, but there are many other options that are available.Â
Help them branch out of just doing household chores. Perhaps the neighbors need help mowing the lawn or shoveling their driveway during the winter. Maybe there are new parents in your network who could use help around the house. Encourage your teen to apply for a part-time job at a local store or a summer job at a local cafe, pool, or beach.
Whatever the options are to make more money, give your teens alternatives that play to their skill sets and unique personalities. By doing this, you are encouraging your teen to take the initiative in reaching their financial goals as well as teaching them to play to their strengths. These skills will be beneficial to them in countless future job opportunities.
Even for most adults sticking to a budget is hard. Helping your child learn to manage their money is no easy task and takes a lot of effort on both of your parts. Besides money jars, there are multiple apps that could make the process more appealing to teens. You will need to work together to align on goals and then make a realistic plan. Keep in mind that as children age, their priorities for their money change, so you will need to be diligent in making sure they are saving and spending appropriately over time.
One last thought â and this is important â is that itâs crucial that parents lead by example. It may not seem like it at times, but your children are always observing what you do and mimicking your habits. When you practice what you preach, your teens are much more likely to internalize financial discipline and, as a result, have much better chances for a financially stable future.
And what parent wouldnât want that?!