Teaching Your Teen About Money

Teenagers and money

A major part of growing up for any teen is to really understand how to live independently and how to become a responsible adult. There is much to learn. Obviously, one of the most important things that a teenager needs to get to grips with is how to handle money efficiently.  If a teenager doesn’t know the value of money and how to spend it wisely, they could well get into financial difficulty later on.

Now, as with any part of growing up, teenagers subconsciously pick up the habits of their parents and other influential adults so it’s very important that you lead by example. As your child reaches his or her late teens the importance of understanding money becomes even greater.

It’s up to you to offer sound advice and to play the role of educator when it comes to managing their finances. Your attitude to money will shape your teen’s budgeting skills enormously. So how do you go about finding great ways to teach your teen about money?

Manage Your Own Finances Properly

Well, there is plenty that you can do.  Firstly though, it’s very much down to you to show them that you can manage your own finances well.  If you spend your money like it’s going out of fashion then don’t expect your teenager to behave any differently!  Your teen is very likely to misunderstand the value of money and simply think that everything is within their reach.

Kids copy their parents so whipping out the credit card every time you fancy a new piece of technology or a wardrobe of new clothes will become second nature to them and they will expect to do the same.  However, as we all know, if the funds aren’t available, being financially irresponsible is a recipe for disaster!

Don’t Dole Out Credit Cards

If the above sounds familiar, it’s wise to rein in on your spending (you won’t be alone)!  It’s also important to explain exactly what credit cards are to your teen and definitely point out the pitfalls.  I am not a believer in doling out credit cards willy-nilly to teenagers who don’t understand how to use them.  You can teach them how to use them sensibly, here are some good tips from the Bank of America.

According to statistics, 11% of teenagers own credit cards and 10% have access to their parents’, additionally 45% of these teenagers amass $3000 in debt by senior year.   Unless you feel your teen is entirely responsible and knows how to manage a credit card, leave well alone!

If you do decide to give your teen a credit card, make sure you have a cap limit on it. A debit card with a bank account (without an overdraft) is far more sensible – more on that further on!

Get Your Teen Involved With Financial Decision Making

What you can also do to help your teen manage money is to start including your teenager in your own financial decision making around the home.  It can be as easy as tasking them with doing your grocery shopping every week.  You can give them plenty of advice.  Teach them how to shop for better deals and look for discounts.  Tell them to seek out multi-buys and cheaper brands (if you can live with switching your favorite brand!).

Grocery shopping can be a fun task for your teenager. Always give them a strict budget and a list of items you want – or you could run the risk of them coming home with a load of candy! At the same time, do remember this task is very much about teaching them how to be financially savvy than making sure you have the best brands in your kitchen cupboards!

Let Them Learn From Your Experience

Don’t be ashamed to tell them about the mistakes you might have made over the years.  It’s rare to go through teen life and adulthood without making a poor financial judgement somewhere along the line. However, there is always some good that can come out of bad decision making.  That good is is learning the lesson and telling your teen about your own errors of judgement when managing money.

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Alternatively, invest in a good book to teach your teen about money.  This one is an example of what you can buy on Amazon, Millionaire Babies or Bankrupt Brats by Jim Fay and Kristan Leatherman.

Explain Financial Products

Explain the different financial products too, such as insurance and the importance of having it in place.  You might want to point out that without certain insurance protection, if something goes wrong, you could lose thousands of dollars.

Give Your Teen an Allowance

Once you’re happy that your teen is ready to take on their own budget you can give your teen bigger financial responsibilities.  From early childhood it’s a good idea to give kids a small allowance as this gives them an insight in how to spend money.  Once your child hits their teens, they will ask for money for lots of different things. This money could be for societies they’re involved with, socialising, clothes, school supplies, school lunch.

Whatever their needs and it’s a good idea to give them one lump sum weekly or monthly to cover a list of items.  However, always be very specific about what that cash is for and explain that they should budget accordingly.  So, they should set aside a certain amount for school supplies, some for swim club, some for their social life etc.

Explain very firmly that the cash you’ve given them must cover everything on that list and there will be no more money until the end of the week/month.  This will teach your teen that money is not unlimited and it will show them what happens if they go over budget!

Try and encourage them to have some left over at the end of the month too. Be firm, don’t give in if they run out – they will learn a very valuable lesson, how to budget and how to manage their money.

Of course, for younger teens, an allowance might be too much responsibility so just start slowly.  Give them a set budget for a specific need, for example, lunch money and give it to them monthly.

When you feel they understand the need to budget efficiently you can add to it and include money for social activities, perhaps for their iPhone/cell phone or for their leisure use.  Just keep going until you feel they are ready to manage a larger sum of money for all of their activities.

Do stick to your resolve though, be strict and don’t bail them out when they overspend.  It’s far better for your teen to learn a lesson at this stage than later on in life, when managing debt becomes trickier.

How Much Allowance Should I Give?

There’s no rule when it comes to how much allowance to give your teenager.  It very much depends on their needs, where you live and most importantly, your own family income.  Don’t feel pressurised, talk to other parents in similar situations and find out what their children receive.  It’s a good idea to encourage a part-time job or similar (more on this later on) if they do want extra clothes or other items.

Teach Your Teen About Saving Up

Another great way to teach your teen about managing money is to encourage them to save up for something they want.  For example, it could be for a car or for their college years.  Both of these examples are obviously large expenses but if you start your teen young, they could save toward the cost.

Of course, it doesn’t have to be a car.  They could have smaller targets, for example, they could save for new shoes, clothes or technology. Teaching them to save up their money is important and will go a long way to help them in adult life.

It’s a good idea to organise a savings account for your teen and encourage them to put in a minimum amount monthly.  Explain to them the money in savings will accrue some interest and eventually, they will have a lump sum to buy whatever they want.

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Long term goals may seem a lifetime away but try and help them to understand the value of having extra money for college or even for a home later on.  Many teens won’t be able to grasp this especially if they are young teens but there are opportunities you can use to help them to understand the value of saving.

A year before they become legally old enough to drive a car, they will more than likely start to talk about it. This is the ideal opportunity to encourage them to start to put aside money toward driving lessons.

Encourage Your Teen To Get A Job!

You can also encourage your teen to take on a part time job if they’re old enough.  This has so many benefits on so many levels!  It helps them to learn to take on additional responsibility and gives them another route to earning money.   There are some great ideas for part-time jobs for teenagers right here.

If your teen is too young for a part time job, why not assign them weekly tasks in the home?  For example, pay them to wash your car or take out the garbage?  Perhaps to walk the dog, do the washing, change the beds, sort the recycling – there are so many opportunities and you get an extra helping hand at home!

Another opportunity to earn money is for them to do some local babysitting. Ask around your friends or the school to see if anyone wants a regular babysitter.  This teaches them responsibility as well as giving them some extra cash!

Why not encourage them to start an eBay account?  It’s the ideal way to earn extra cash and all those old clothes they don’t want can be sold at auction!  It works well for you too, clear out your own things and get them to sell them for you; there’ll be far less clutter in the home.

Open A Bank Account

If your teen is earning extra money, a bank account is essential because it’s somewhere to deposit their cash.  Take them to your bank and organise a meeting.  This will go a long way to teaching your teen about banking and give them a sense of independence and importance.

Once your teen has a bank account set up, you could suggest that they organise a direct debit so a set amount is deposited into their savings account every month. This helps them to learn how  to save for that big purchase we talked about earlier.  Additionally, having a direct payment is automatic so there’s less risk of your teen forgetting to save.

Most US Banks provide bank accounts for teenagers; the Bank of America has an entire section dedicated to student banking .

It’s never too early to teach your teenager how to manage money. To summarise, here are some useful tips for what you can do to teach your child about the management of their own personal finances:

  • Be aware of how you treat money, they pick up habits (good and bad) from parents, family members and other influential adults
  • Give them a sum of money for all of their activities and tell them they have to budget accordingly
  • Task them with things such as the grocery shopping
  • Encourage them to earn money, perhaps through babysitting, tasks in the home or if they are old enough, with a part-time job
  • Set them up with a savings account and a bank account
  • Organise a monthly direct payment into savings
  • Don’t give them a credit card until you are 100% confident they understand how to use one!
  • Set them up with an eBay account and teach them how to sell or encourage them to organise their own garage sales to earn extra cash
  • Give them some online advice, here’s a YouTube video explaining how teens can manage their money well.
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Emma Crossick is a writer, mum of two, wife of one living in London. Emma spent 13 years working at Head Office for a very well-known high street retailer, three of those years were spent working for the food side of the business and subsequently, she worked for a food supplier where her passion for all things edible further developed.

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