Money Management — Teaching teens money sense

October 2012 View more

NMAG1012_FinanceMoney management skills, like manners, are not inborn. Children develop these and other good habits by learning from those closest to them.

A 2008 Charles Schwab survey on families and money, uncovered that parents worry about their kids’ financial futures, but may not be doing enough to teach money management skills. Most parents (93%) with teens 13 to 18 years old, worried that their teens might make overspending mistakes (67%) or rack up too much credit card debt (65%). These parents acknowledged they could do a better job of prepping their kids for financial challenges of adulthood.

Helping teenagers become money-savvy is a big order, but will pay big dividends when they become adults in an increasingly uncertain financial world. The journey starts with baby steps, long before children become teenagers. I’ll list some resources later—but let me first share some tips that worked for me and for others.

Let them make spending choices with their own money, and don’t bail them out. 

When I told our eldest, then seven years old, that we couldn’t afford a particular toy, he asked why I didn’t just visit the Cash Station to get money. Realizing that he thought money was in endless supply prompted us to institute an allowance that forced him to budget for near-term and long-term spending choices. It took time and patience. It was painful not bailing him out when he was tapped out. But this early preparation helped when both our children became teenagers.

Make living costs and your spending thought processes part of the family conversation.

If teenagers never know that parents must budget and sacrifice to manage a household, they’ll not consider money management a big deal. Don’t include them in heavy, worrisome discussions. Rather, make them part of the conversation about how much the basic package for cable TV costs versus premium, and how you’re balancing pros and cons and costs before making a decision. Or, how you’re saving for a new couch rather than just charging it. Lessons on tempering spending versus assuming debt must be a part of your curriculum. Discuss everyday expenses, too—water, electric, and gas bills. Otherwise, kids have no idea why you’re asking them to turn off lights or conserve on water.

Let your kids know how much they cost you. Make them “pay bills.”

I was impressed when a friend mentioned that her teenage children have checking accounts and pay bills. Let me explain. Parents are responsible for most expenses their children incur (e.g., music/dance lessons, on-going extracurricular activities, some or all college expenses, etc.). Most kids have no idea the dollar amount of those expenses, when bills come due, or consequences of late payments. Make your teenager responsible for approaching you each month, or appropriate interval, to ask for a specific amount of money for pre-determined qualified expenses. Deposit money in his/her account, and make your teenager responsible for writing a check for the expense—on time. I contend that this skills-and-responsibility process is more important than it looks on the surface.

Make kids get a job, no excuses.

According to the Schwab study, teenagers who have paying jobs are 40% more likely than kids who don’t, to be “stellar savers” versus “quick spenders.” Working a few hours a week or in the summer can offer important practical money management experience. My boys were much more cautious with their own earnings than with mine.

 Key Resources

Teaching Kids About Money: 10 Tips

National Money Night Talk
Encourages families to discuss the importance of money and financial responsibility

Not Your Parents’ Money Book: Making, Spending, and Saving Your Own Money
(FT Press: 2010)