Teaching teenagers about money can be more intimidating than teaching younger children because teens are more aware of your behavior. And, let’s face it: regardless of what we say, young people learn more by what we do than by what we say.
Even if you’ve made financial mistakes or haven’t set the best example for your children to follow, you should still talk to them about their financial behavior. Talking about your experiences and what you’ve learned will help teens appreciate the importance of building good money management skills. As with other areas in our lives, talking about money doesn’t require us to be perfect—we just have to be concerned about our child’s future.
Four Basic Principles to Help Teens Become Financially Fit
1. Earning. It’s important for teens to understand that work creates money. Whether they have a part-time job or work around the house, the ability to connect work with earning an income will help prepare them for real life. There’s much debate about providing teens with an allowance, but financial experts tend to agree on the benefits of teaching children about earned income. Some even suggest that parents who give allowances to children should pay only when they’ve completed assigned tasks around the house. These responsibilities may include washing dishes, mowing the yard, cleaning their room, or other household chores. Some families may choose to establish a “work for hire” situation where teens sign up for specific tasks on a monthly basis with an agreed “wage” for each completed assignment. A noted financial advisor likens allowance to commission, in that no allowance should be given to young people who fail to complete their assigned tasks. Whatever process works best in your household is satisfactory as long as children are making the connection between work and income, rather than getting something for nothing.
2. Spending. In 2002, U.S. teenagers spent more than $170 billion. Almost half of that money went to purchase clothing, shoes, and accessories. Marketers recognize the power of teen spending and commit millions of dollars to teen-targeted advertising campaigns. Saying “no” when teens ask for money is painful, but it will help teens learn the difference between wants and needs. While all children need clothing, shoes, and accessories, they’re not entitled to wear expensive designer labels. When teens are earning their own money, it can be more challenging to guide their choices. However, they can still learn to budget and to stop spending when they have used their available funds. As a general rule, teens and credit cards are a dangerous combination—especially if parents pay the bills. Instead, try giving your child a debit card with a set amount to spend each month. Some families charge their child a monthly fee for cell phone use or other expenses. Such practices will help teens understand that financial resources are limited and should be allocated wisely.
3. Saving. When teens earn money, they should also learn to put a minimum of 10% into a savings account. Helping your child set a goal to make a major purchase or save for college provides motivation. Teens can use their savings for an agreed upon small purchase. You may want to match their savings for larger items such as a car or insurance. Setting a pattern to save early in a child’s life will help ensure they have a financial cushion for future years.
4. Sharing. Setting aside an additional 10% of each paycheck for charitable or religious contributions builds character and instills the qualities of good citizenship. Events like the recent hurricanes provide invaluable opportunities to talk with children about the importance of sharing their money with those less fortunate. In addition, it is a great time to talk about their role in a democratic society.
Each of these four principles requires young people to make good choices. Talking with teens about possible alternatives and helping them weigh costs versus benefits of the various options will develop decision-making skills and promote financial health for years to come.
Sue Lynn Sasser is an assistant professor of economics at the University of Central Oklahoma and president of the Oklahoma Council on Economic Education. She is also immediate past president of the Oklahoma Jump$tart Coalition for Personal Financial Literacy. Sasser is a long-time advocate for economic and financial literacy for youth and families.