Personal finance for teens can empower your child

Teaching your teen about finances can be as simple as modeling responsible behavior while also allowing your teen spending money as a learning tool.

You want to teach your teenager about managing their personal finances responsibly, but your teen’s a teen. Lectures and lists are not always likely to work.

Instead, model a thoughtful approach to your finances. In other words, show your teen what you do rather than tell them how they should use their money. And then, within reason, let your teen make his or her own financial decisions. It can help him or her grow and learn.

Here are some basic ways to get started.

1. Lead by example

You can display financial aptitude and awareness in a number of ways:

• Be transparent about your own monthly bills, debt and spending, especially if your teen asks. This portrays a realistic picture.
• Create a family budget. It could be as simple as the money for weekly groceries or for meals out. Or, it could be an inclusive monthly budget. Either way, it can be eye-opening for teens to see how money is really allocated.
• Use cash. With credit cards, it can appear that there’s a limitless well of resources. Instead, use cash for fun expenditures. It makes for a good visual representation of where money goes. When the cash is gone, the purchases for the day, week or vacation should wind down as well.
• Compare prices when possible. Show teens that similar products can have wildly different costs, and encourage them to consider why one choice might be better than another.

2. Set financial goals for teens

Teens may not understand the importance of financial responsibility until they are allowed to manage and earn their own money and even develop financial goals, like saving for a special purchase.

• For younger teens or preteens, a weekly allowance can make sense. It gives them a small amount of money to learn with.
• For all teens, also consider paying for work beyond basic household chores that you would normally pay someone else to do. This can be anything from shoveling snow in the winter to helping build a deck in the summer.
• For older teens, consider allowing them to have a part-time job. Not only will it teach them responsibility in a variety of ways, but they’ll now have their own finances.
   

While many families give a weekly allowance contingent upon the completion of household chores, there’s an ongoing debate about whether the practice is healthy.

Some experts feel it’s a bad idea to teach your children (especially pre-teens) that they’re doing chores for money rather than because they’re part of the family and live in the home. Some also feel financial goals for teens add too much stress to what can already be a difficult age. Ultimately, the decision is up to you.

3. Let teens spend (most of) their money

The point of allowing your teen some spending money is to give them a taste of what it’s like to budget and save — as well as what it’s like to run out of money. This only works if you let them make their own decisions.

• Your teen’s money is not your money. You might not spend your hard-earned cash on candy bars and music downloads, but you need to allow them the freedom to learn for themselves.
• If your teen runs out of money, don’t pick up the slack. A few nights spent at home because there’s no money for trips to the movies with friends is a non-emergency.
• If your teen wants a big-ticket item (like a car, or an expensive video game console) for their birthday or a holiday, don’t automatically get it. Be honest and tell them it’s beyond what you spend on gifts. Offer to pay part of the cost, while encouraging them to save for the remainder.
• Consider mandated savings. Talk to your teen about college. If, before they get a part-time job, you tell them it means you expect them to contribute part of their earnings toward a college savings plan, they’ll likely be amenable. Building the habit of saving a portion of every paycheck is healthy.
• However, don’t move the goal posts. A part-time job doesn’t mean your teen’s suddenly on the hook for groceries and the electric bill. They’re still a minor and live with you. Let them earn and save their own money. (If your family has financial difficulties, talk to your teen — in this case, the part-time job has a different goal.)

4. Opening a bank account can make sense

Especially for teens with part-time jobs, a savings or checking account can teach added responsibility and long-term saving, as well as about interest rates and comparison shopping. It also gets your teen comfortable within a more formal financial setting.

Need help with setting up a savings or checking account for your teen? Make an appointment with a banker online and we’ll help you get started.