Teen Talk, 5-9-2013, Teens and Financial Responsibility
Question: I have two teenagers and I am blessed with the fact that both have jobs this summer. Fortunately one is really smart about the use of money, my daughter on the other have, as quick as she earns it, she spends it. Please give us your thoughts on laying the foundation for money sense for teens.
Answer:According to a US Bankruptcy judge 68% of high school and college students say they have never head a meaningful conversation with their parents about personal finances and 10% of college students will drop out of school because of credit debt. So this question regarding financial planning and money sense is a good conversation to have as far as preparing our teens for future money management success.
1. Start early to have the conversation. Start with the concept that money is important for survival. It is not free, it is earned.
2. To the extent that you can, set the example of smart, responsible spending, and also set the example of postponed gratification.
3. Do not buy everything for your teens. This is truly not helping. When your teen enters the real world they are going to have hard lessons and this is one of them.
4. Teach your teens to think before they spend. Do they have the money on hand? Do I need this? Can I buy this somewhere else for less? If you give an allowance, this is especially important with older teens to teach them to think through purchasing decisions before proceeding with a purchase. For example, if I buy this, will I have enough money to buy that?
Encourage your teens to get the best buy; call around, check the internet, check the sales.
5. Teach budget and goal setting. Identifying budget needs will help them prioritize savings and spending needs. Identifying and setting specific goals, such as I will need $50 for this game or $115 to place on my phone bill. It is extraordinarily important to set financial goals. Encourage your teen to have a specific goal in mind; whether it backpacking through Europe, a car, or even if there are into clothes as most young girls are, even if it's a dress at BCBG, they can plot a time line as to when they can move towards that.
6. Resources, money sense website resources for your teens include; Active Allowance, which is a revolutionary website that helps create thoughtful and sustainable allowance. Family Money is a money management certification program. Money Smart/Credit Smart is a free online, interactive, user friendly financial literacy program developed by Consumer Credit Counseling and Dave Ramsey's Foundations in Personal Finance.
7. Challenge the false sense of entitlement for some teens. Money does not come easily. People have to work hard to earn money so the importance of setting limits early on spending issues creates a sense of responsibility and money sense.
8. To the limit you can, allow your teen to work on the family budget. This is always helpful in terms of teaching money responsibility. Explain reoccurring bills, especially the difference between monthly rent or mortgage payments, utilities, and insurance commitments. Talk through the potential impact of unanticipated expenses. Give an example of what happens when an appliance breaks or an unexpected car repair.
9. Teach the difference between a money "want" and a money "need".
10. You can teach how to shoulder financial responsibility; if your teen is making regular dollars, encourage him to pay for his own expenses like I-tune downloads, movies, the food court.
11. Check with your bank. The benefits of a teen bank account are certainly available in some banks or credit unions. Alternatively you might want to open a high interest savings account, this money is hard to withdraw but will certainly grow faster.
12. It is important to have the discussion of the perils of credit cards. Many credit card companies are happy to offer teens their first credit card, either with a small credit line or pre-paid advance payment. These cards should be avoided as long as possible. Unfortunately this is like the gateway drug of credit cards; they do reinforce the concept of buy now, pay later. It's almost more prudent to have a debit card, where at least they know they are spending money, and when it runs out, it simply runs out.
13. Start building money muscle memory so that you are familiar with what works for you or what might work for them. Help them to develop responsible money behavior early in life. This part of the groundwork.