Last week I began my discussion on how we can help our teenagers to become responsible adults. I spoke of the importance of teaching them responsibility https://attunefp.com/blog/three-ways-to-teach-your-teenager-how-to-be-responsible. Today I want to talk about teaching our kids basic money management skills.
As young children, our kids probably did not have a real understanding of what money even was. Life was all about satisfying wants and desires. If they wanted a new Lego Set for example, they would just ask for it. I’m sure we can all remember the trips to Target and our kids holding up that new Lego Set and asking us if we can buy it for them. Our responses ranged from ‘No, put that back’ to, ‘Not today. Maybe next time’, to ‘We’ll get that for you for your birthday or Christmas’. If on those rare occasion when we felt generous, we said, ‘Ok. Sure’. Whatever our response, our young children just knew they wanted something and they wanted it now. At that young age, we did not teach our kids about money per se. If we did our jobs right what we were teaching them was the ability to delay their gratification. (If you still have small kids, one way to teach delayed gratification is by giving them a small piggy bank and the next time they want something tell them you are going to save for it. Deposit a certain amount of money in their piggy bank regularly until the required amount of money is saved. Your small kids will enjoy watching their money grow.)
As our children got older, we began to teach them the concept of “earning” the things they wanted by demonstrating good behavior or by doing chores around the house. It is at this stage that they began to learn the concept of exchanging one thing for another. In essence, they learned how to conduct a “transaction”. I do something for you and in return, you give something to me. While they might not yet understand the value of money, they are learning the important lesson of having to work for something if they want it.
The teenage years are a good time to teach them the value of money and the important money skills they will need to learn if they are to successfully manage their finances on their own. It is at this stage that our kids grasp the concept that money is required to fund all of the wants and needs of their lives. They are beginning to realize how expensive the things they want can be as they are probably beginning to spend some of their money independently. Whether it is their regular allowance, money gifts from grandparents, or earnings from a part-time job, they are going out and making independent spending decisions. They are going to the movies, having lunch with their friends, and going to the shopping mall on their own and spending money. Learning good habits now will give them a solid foundation now that will pay off in the future.
Below are four ways that you can help your teenager develop solid money habits so that they are well prepared to manage their own finances when they eventually move out on their own:
1. Get them involved with household budgeting
Have you teenager sit down with you so that they have a sense of what your household expenses and what is required to “keep the lights on”. For example, show them your credit card, cellphone, utility, and cable bills and discuss what the statements mean and how the expenses are calculated. You can show them how you actually pay the bills so they can see how a check is written or how an on-line bill is paid out. By talking about your expenses, they will gain an appreciation of how much money it actually takes to run your household and can see how managing a budget actually looks like. If your teenager really shows a keen interest in finance, get them more involved by having them track certain family expenses like groceries or dining. They can even help you write out the checks each month or make the on-line bill payments. Appreciating the value of money will help them make better money decisions as adults.
For a refresher on establishing a budget go to my blog article on setting up a personal budget: https://attunefp.com/blog/balancing-your-personal-budget
2. Open a checking account in their own name
Show your teenager how banks work by taking them to your local bank with you and open a Teen Checking Account in their name (with you as co-signer of course). The benefit of having their own savings account is that they can now deposit any earnings they receive from a part-time job, gift money, or allowance into a bank rather then have it sit in your account (where they don’t have visibility to it) or in a shoebox at home. A Teen Checking Account also comes with a debit card so they can make purchases without having to carry cash. There are also parental controls so that limitations can be placed on how much your teenager purchases or withdraws from their account. Having their own bank account will give them a sense of ownership. It will hopefully lead to more careful decisions on how they spend their money as they will directly see the balance go down in their account every time they buy something.
Note: If your teenager does not have a part-time job, consider only replenishing funds in their checking account only after they have “earned” it by doing the responsible work around the house that they have agreed to do. Money not earned might not be appreciated as much and may perpetuate the idea that mom and dad will bail me out when I’m in financial trouble.
3. Show them how to manage their own budget
Having their own checking account means that they should also be responsible for managing the checking account to make sure they do not run out of money. To ensure that this doesn’t happen, help your teenager manage their own budget. This can be done on a piece of binder paper, an excel spreadsheet, or a money application like Quicken. Whatever your tool, make sure to use one that your teenager can understand and can manage themselves. Together, calculate their expected income sources and expenses for the year. It is critical to discuss their big spending goals for the year. Do they want to purchase the latest video game, or buy an expensive pair of shoes? Discussing these goals will help them learn how to either save more money and / or minimize their spending so they can buy what they really want for themselves. Establish a regular time when you will meet with your teenager to review and discuss their checking account, budget, and spending goals. Learning how to manage their own budget will not only help them ensure they do not run out of money but will help them understand the benefits of proper financial planning. In return, this can lead to greater financial success and less credit card debit.
4. Teach them the value of saving their money
It is natural for teenagers to spend their money as it represents freedom, independence, and a sense of growing up. However, delaying gratification and developing a saving mindset is what will really provide them the foundation for financial success. Talk with your teenager and explain to them how saving a little at a time today will result in more secure and stable future. Mutually agree that they will save a certain percentage of their part-time pay, allowance and / or gifts received. In addition, talk with them about the dangers of accumulating debt and how it can delay or even destroy future financial success. For those teenagers who started saving money in a piggy bank as small kids, the concept of delayed gratification is not new. However, if it is new, it is vital that teenagers learn about delaying gratification now. Not learning this important skill can lead to destructive money habits as adults like compulsive buying and credit card debt.
To illustrate the potential power of time and interest rates on savings, you can go to this Nerdwallet tool: https://www.nerdwallet.com/blog/banking/savings-calculator/
You can show your teenager the dangers of debt by going to the following calculator: https://www.nerdwallet.com/blog/finance/debt-snowball-calculator/
Having regular personal finance discussions with you and your spouse can be challenging enough. Speaking with your teenager about money can be even tougher. However, the time we spend with our teenagers today can help prevent them from making some of the mistakes we did when we were their age and will hopefully lead to them becoming financially secure adults.
Next week I will discuss how to help your teenagers develop good driving habits.
would you like to learn more about developing good money habits?
This content is developed from sources believed to be providing accurate information, and provided by Attune Financial Planning. Please consult your financial, legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information only.