It is never too early to start practicing good money habits. In fact, the earlier teenagers are exposed to good financial habits, the better chance they will become financially savvy. This is an important life lesson in general, but especially if college is on the horizon for your teenager. Becoming a college student is probably one of the most exciting and immediate milestones for high school students when they look towards their future. Not only do teenagers feel a sense of freedom regarding important life decisions, but they will also be handling their own finances – including decisions regarding loans.
For some, the transition to handling their own household finances will be an easy step, for others it might represent a 12-foot hurdle. Give your teen the best financial head start possible by working financial topics into everyday conversations. By helping your teen learn money management lessons with smaller amounts of money, by the time they graduate college, they’ll be prepared for managing their finances with a full-time job.
If you’re not sure where to start the conversation with your teen, try some or all of these six ideas:
1. Give them an allowance
Allowances can be a controversial topic. For some households, this lesson works extremely well, and for others, it may be less feasible. Parents who find success with allowances have a set of rules and conditions their children have to follow in order to earn their allowance. It might seem best to tie the allowance to chores being completed, but try to resist tying all the money to chore-related tasks. Children should be expected to assist with family tasks and not have an expectation of always being paid for helping around the house. A key component to being an active member of a family is participating in daily tasks. Create not only a mix of tasks (a chore, education, or sports-related) but achievements as well, and be creative with it.
For example, you can provide an allowance of $2 per day, but perhaps with the condition attached that the child is responsible for paying the additional amount for their gym shoes beyond the $40 you are willing to pay. (Be prepared, as well, for a child that then chooses to select a pair of sneakers that cost $28 and is expecting the $12 difference of what you were willing to spend. In this event, you are well on your way to raising a financially savvy kid.) Other parents choose to allow their teen $20 a week for gas, but the child has to fill up the tank. If there is any extra money left over from filing the car with gas, they can keep it for other spending or saving goals. You’ll be surprised at the success of giving children an allowance and empowering them to use it responsibly.
Teenagers, especially high school students, want to have fun and enjoy their time to the fullest. This does not, though, always come with the responsibility of paying the greatest attention to their spending. It can be even harder when teenagers don’t know how their parents are managing their finances—good practices and discipline are the best example you can provide your child(ren).
Budgeting can’t be mastered overnight, which is why it must be taught. Ask them to be involved in your weekly household goods shopping and in creating monthly budgets. If they’re working a part-time job, assist them in creating a budget plan and saving for college or other saving goals such as their own car. Children crave discipline and boundaries—and financial discipline is so very important. Budgets help teach them that fun is possible, but that it has limits and comes after their responsibilities have been met.
3. Teach them about debt and its consequences
High school students, regardless of their post-12th grade plans, should know about the cost of going to college and the consequences of debt. Even if parents plan to pay for the child’s entire college education, things can change. Some parents make the mistake of putting education first, but not talking about the work it took to build-up the college fund. Again, teaching and exampling discipline and focusing on a long-term goal is key to success.
Let teenagers make monetary mistakes, and show them how every action has consequences. If the teen goes over budget one month, they need to learn that in the next month they will have to cut back on a category, such as going out for ice cream. The same goes obviously for college. Going shopping and for lunch—while therapeutic—can have expensive long-term consequences. Help teach your teen that the $60 shirt and $20 burger platter actually costs significantly more than $80 in the long-term when it comes to paying back student loans over 10 years with interest. Showing them the burden of debt will be one of the greatest lessons that every parent can teach their children, regardless of the parents’ income. While it is much easier to simply hand out cash and cover all of your child’s “expenses”, having them put some skin in the game and figure out debt management can be invaluable.
4. Practice delayed gratification
The toughest lesson for everyone, especially teenagers, is making them wait to buy what they want. We all have a natural urge to buy things we want or like immediately. For that reason, it is even more crucial that parents practice delayed gratification with teenagers and resist buying things they want versus what they really need.
For instance, if their classmate shows off the latest tech gadget or fashion trend and thus your teen wants to have the same, tell them to wait until the next week or even the next month. If it’s just a want, make the teen contribute part of the cost, too. The age-old question of, “Is it important enough for you to spend your money on it?” is huge in teaching want vs. need. Chances are, once time passes and they’re faced with paying for it themselves, the desire will likely fade. It is also important to note that if they do pay for it themselves that you let them do so. It is a bad lesson to pay for the item at the 11th hour because you will have undermined your own credibility and the practice of delayed gratification. Another bonus of having the child pay for the item themself is that you will be pleasantly surprised at how well they take care of the item(s) they purchase with their own money!
5. Instill good credit score builder habits
The term “walk the walk” is especially important in teaching kids financial well-being. Kids are a sponge and absorb more than we likely know. It is always a good idea to be a financial role model to showcase healthy money habits and attitudes on a daily basis that your teenager can follow. Be certain to focus on just that child when reviewing their financials habits, and avoid comparing them to you or their siblings. You want to build good habits by empowering them to follow your example, not just doing something because they have to. They will eventually take ownership of good habits (or bad habits, depending upon the example you provide) and will continue to use them throughout life.
Properly educating your child on financial consequences can help your teen to make the right choice when making financial decisions. One important consequence to relay to your teenager is how a credit score can affect their future finances. One avenue to help your teen have a good credit score before going to college is giving them access to a credit card. Of course, before giving them a credit card be sure they have shown and demonstrated good money habits. It’s easy to overspend with a credit card, which is a lesson young adults often have to learn in college when credit card companies are offering cards left and right. So walk them through the fees and benefits of different cards, and best practices regarding credit card usage, so they can have a perfect credit score. Many graduates find themselves with little to no credit when it’s time to buy a car or get a loan or even rent an apartment if they haven’t started working on building their credit score throughout college. Prepare your child ahead of time, and they will thank you for it.
6. Make small savings goals
Take baby steps toward building a savings account for their own goals, but be stern in importance of saving. If you provide an allowance, mandate that the first 10% go directly to savings before any other spending occurs. Once this habit of saving—frankly, of paying themselves first—takes hold, it will become second nature as they move through life and get better jobs and make more money. It is also important that with this savings, they have the ability to work toward a goal. Saving just to save is important, but it is equally important to save for something important. Ask your child what they want to have the most and help them define their goals. It could be a new iPad, a pair of new kicks or a trip with their friends. Whatever it may be or how ridiculous it may seem to you as an adult, it will help motivate them to save.
Once they are motivated to save, open a savings account for your teens to which they can contribute to each week. Perhaps even offer to match their contributions up to a certain amount each month. At the end of each month, show them the monthly bank statement. Seeing their progress will push them to put more toward their goal each week. Then once the first savings goal is accomplished, you and your teen can start moving to bigger and more valuable goals, like their first vehicle.
Money lessons aren’t about how much money is available to you or your teenager, but about building good money habits for the future. Keep in mind everyone makes mistakes when they first become financially responsible for themselves, just make sure your child understands the lesson for the future. We all can agree that we learn more from our mistakes than from our successes. No matter what anyone says, there is no one “right” way to teach your teens. Every lesson depends on the child, on the family’s financial situation, and on your values. As long as they form good habits over time, and the main topic of every family dinner isn’t always about money, you will help create the roadmap of lifelong financial success for your child(ren).