How to Teach Your Teens the Principles of Money Management
The only context most teens have about money is they need it to buy things. Here are five core principles parents should follow when teaching their teens about money.
There are few things that create more contentious moments between teens and their parents than money issues. Kids develop their first real awareness of money as teens. It’s when they become socially active and venture beyond the neighborhood for their entertainment. It’s when they finally look at themselves in the mirror to see what they’re wearing, and they don’t like what they see. It’s when they begin to experience the peer pressure of owning the latest gadget or driving a cool car.
The only context for money many teens have is that it is essential for buying the things they need. If parents hope to raise their teens as financially responsible adults, they need to quickly change the context, and teach their kids about the value of money and how it works in the real world. Here are five core principles parents should follow when teaching their teens about money:
All Money is Earned
By the time a child is a tween, they should understand that money does not grow on trees. Every cent they receive should be tied to something they did to earn it. Their allowance should reflect the extent of the chores with consideration for their age. For instance, a $10 weekly allowance would be appropriate for a 12 year old, and a $20 weekly allowance might be appropriate for a 15 year old, and so on. By the time a teen is 16 they should be looking for a summer job, especially if they expect to be driving a car.
They should be allowed to spend their money on anything they want (within reason), but they should learn about the concepts of tradeoffs and savings. For instance, if they spend all of their money on a new electronic gadget, they won’t have money to spend when they are out with their friends. If they want to purchase a more expensive item, they need to learn how to save.
This would be the best time to open a checking account and savings account for them so they can learn how to manage money like an adult. Because bank accounts can be managed online, both the kids and their parents will be able to track spending and savings daily.
Save off the Top
Teens need to learn they don’t have to spend every dollar they receive. Challenge them to put a minimum of 10 percent of what they earn aside in savings. Some parents work out an arrangement with their teens to withhold a portion of their allowance to put it in a savings account. However, it would be more effective to have your teen learn to do it on his own. Have them set some savings goals that will motivate them. One way to spur a savings mentality is to offer to match a portion of their savings when they reach certain benchmarks.
Bring Your Teens into the Financial Conversation
Teens are old enough to participate in family discussions about money. When discussing issues such as where the family should vacation, or getting a family pet, or whether to build a swimming pool, bring your teen to the table to talk about the goal and how much money is involved. In doing so, they will feel as though they also have a stake in it; and they will be more participative in the process for achieving it. They’ll also get a better sense of the work that goes into earning the money to pay for family goals.
Let them Shop
One of the quickest ways to learn about the value of money is to spend it. Most teens reach a point when they feel they can do a better job of shopping for clothes than their parents. So, when you think they’re ready (could be as early as 15 or 16 for some kids), give them a budget, set some guidelines and let them shop (you might want to send them to store that’s having a big sale). If you budgeted for 10 items of clothing and they only come back with three, you need to have a discussion about value, and how expensive clothes can be a wasteful use of their money. Teens can learn by their mistakes, but they need a chance to make them. You may want to tag along on their first shopping trip to offer pointers, but you may have to walk ten feet behind.
Time Value of Money
If teens only knew the big advantage they have over their parents - the advantage of time - and how to use it, they might jump all over it. Teaching your teen how the time value of money works with the magic of compounding may just spur the penny-pinching mentality you’d like to see in your kid. You can do so by having your teen go to an online savings calculator and play “what if.” “What if I could save just $20 a week, how much would I have in 10 years?” Have them go big by plugging in $500 a month in savings. You’ll see their eyes widen when it shows they could have a million dollars by the time they turn 50. Looking that far out in time may seem a bit abstract for a teen, but at least they’ll begin to understand some valuable money concepts.
Granted, teenagers generally have short attention spans and most are more concerned with living for the moment than how to be better money managers. Like everything else we try to teach our kids, it’s about baby steps. But, teens are always looking to gain more control in their lives. What better opportunity to give it to them while teaching them valuable concepts about money.