When my daughter was a teenager she learned a wide range of poor money habits from me. Maybe you can relate?
If you’re struggling with what to teach your teen about money, realize that up until now they’ve been watching and learning how you think, feel and act about money by watching your behavior and listening to the way you talk about the almighty dollar.
If you’ve been negative or found yourself stressed about paying your bills, your kids have seen this first hand.
We often think that we do a better job of shielding our kids than we actually do. They hear the fights between you and your spouse, see the late notices, wonder why the lights got shut off or the heat won’t turn on. Despite your best efforts, they see it all.
Unfortunately, finances and budgeting often aren’t taught in school. I know I didn’t learn about money in school and more than likely neither did you.
But it’s up to us as parents to prepare our teens for the “real world” when it comes to their finances.
THE SIMPLE FORMULA TO TEACH YOUR TEEN ABOUT MONEY
But how do we do that when we might not the best way to handle money either? If you’re not especially good with money, where do you start?
Kid’s absolutely, 100% learn their money habits from watching their parents; they’re watching your actions more than they’re listening to your lessons, so be sure you’re teaching what you want them to learn. Remember your actions speak louder than words.
If you haven’t created a budget for your family and work at living within that budget, your teen won’t understand why you’re telling them to do it. If you don’t balance your checkbook, put money into savings, learn how to manage your money and grow your portfolio, your teen won’t think it’s important to do it either.
These tips will help you teach your teen about money and the lessons that will last them a lifetime.
UNDERSTAND AND CREATE A BUDGET
Teaching your teen to budget early on is one of the most important habits you can instill. From the moment they get a job or receive an allowance, they need to learn to set a portion of that money aside for savings.
They need to learn to allocate money for different things they want like going to the movies with friends or buying that new video game. They should also learn to allocate money for the necessities they’ll one day face, like bills and rent.
Show them how budgeting works with Monopoly money. Give your teen a stack of monopoly bills and tell them that it represents how much money you make each month. Then divide it up to show how much you spend on things like mortgage, groceries, utilities, and how much you save and invest. The denominations aren’t that important.
What does matter is showing your child that you have a sensible plan for your money.
Start practicing early on. Don’t wait until your teen is in their late teens to teach them these important concepts. 12 and 13-year-olds can grasp these concepts now and should be shown them and practiced regularly.
SAVE FOR A RAINY DAY
Saving money is essential when it comes to personal finance. From the time your kids are old enough to ask for toys and electronics, you should start teaching them how to save and pay for what they want on their own.
An allowance is a good tool for teaching about saving. Your child may want a new shirt that costs $30, but her allowance is only $10 a week. It’s her choice: a movie with friends today, or the shirt she really wants a couple of weeks from now.
Almost all personal finance comes down to this essential idea of choice. The easiest way to learn is through experience.
After your teen starts earning money of their own, tell them that they need to give you a certain amount each month, maybe $25 or $50, as their contribution to the household. Don’t spend it. Instead, deposit it into a savings account for them. Keep it a secret and just keep depositing the money each time they give it to you. They’re learning babysit lesson that they can’t spend all their money on fun things like going out.
Once they graduate, you can give the money from the savings account back to them for something they need like a car or to put towards college. This will help them to understand the importance of saving money.
A WORD ON ALLOWANCES
I personally don’t believe that children should be given an allowance for participating in expected chores and tasks that keep the household running smoothly. When they have a place of their own, nobody is going to pay them for taking out the trash.
But, I do think kids can “earn” extra money by doing tasks that fall outside the normal household routines.
Only you can decide if you’ll give an allowance or not but remember it’s important to teach your children about money in a normal way as possible.
BEWARE OF CREDIT
Teens tend to think that credit cards are like free money; they don’t yet understand the concept of borrowing with interest and having to pay it back. It’s important to teach them how to use credit wisely early on so they can build good credit when the time comes and they don’t mess it up by maxing out their cards and not being able to pay them off.
Before your teen gets a credit card, teach them a simplified lesson about how it works.
If they want a pair of shoes that cost $200, agree to extend them credit, but let them know that there will be conditions. You’ll allow a grace period of two weeks to repay the loan, after that, interest will start to accrue at 5% per week. Tell them that the minimum payment for repaying the loan is $25 a week or whatever amount is equal to their allowance.
Show them how to calculate how many weeks it will take to pay back the loan, with interest, if they only make the minimum payment each week.
Once they learn how much more the shoes will cost when they have to pay interest for paying over time, they’ll be less likely to use or max out their card with frivolous purchases.
I personally don’t feel any teen over the age of 18 should be given a credit card until they fully understand the ramifications. It does them absolutely no good to have one if they end up in serious financial debt.
At all costs, encourage your teen when they get approached in college to just say no and continue using the smart money habits you’ve been teaching them. They don’t need the debt.
WORK HARD FOR YOUR MONEY
Help your child understand that money isn’t just freely given. It is earned.
If you decide to give your teen an allowance, make sure they earn it. Give them chores to do to help out around the house and attach a payment schedule to each chore. For instance, they may earn $5 for cleaning up after dinner but $15 for cutting the grass.
You can encourage your kids to earn extra money by suggesting they cut grass, rake leaves, shovel snow, pet sit, and baby sit around your neighborhood. Or support their efforts in starting their own online business by helping them get set up. There are a variety of options for businesses they can start if they really want to earn money.
LEAD BY EXAMPLE
If you’re reading this and thinking, ‘I don’t have my own money situation under control. How will I teach my kids?’ then you’ll want to start working on creating good money habits.
One of the ways you can all learn together is to discuss the family finances each week at a regular scheduled Family Meeting. You can use the time to discuss bills that need to be paid, developing your monthly budget, savings goals, credit card issues and many other topics.
Use our Family Meeting Resources to keep track of it all and to work together with your family to all learn together how to handle money responsibly and appropriately.
Teaching your teens how to manage their money, save for the future, and maintain good credit is the best lessons that you as a parent can teach.
The more they learn as they’re just starting to earn money, the better off they’ll be when they’re adults, living on their own and supporting a family.
Poor money habits will affect them all their lives and keep them constantly struggling. But good money habits will set them up for success and allow them to have all the things they want in this life. And who knows, you may even learn something new about money management while you’re teaching them.