Teaching Teens Wise Money Habits

Teaching a teen about money and how to handle it can never come too soon as a life lesson. A little economic forethought is necessary to get us through this hum drum adult life of ours. A teenager, especially, needs to learn the value of a dollar as well as the priority in which it needs to be spent. One thing I really, really wish someone had done for me as I stepped light heartedly on the edge of adulthood, about to enter into the "real" world, is teach me how to do a budget. This is probably one of the most essential things to running a household at full capacity with minimal fuel. While most teens will have a rather short list of priorities, its important that they learn how to budget for them and save for long term goals as well as emergencies later in life. No better habit can be formed at an early age than how to budget properly. Having said that, lets see how we can break it down to make it easier for teens to understand and follow. First, whether their income comes from an allowance or after school job, teens should be taught from day one if they want nice things, they have to spend their own money on them and they have to take care of them. There is a lot to be said for the age old idea that if you have to work for something you appreciate it more. This goes for even small things like CD players. If your teen uses his or her hard earned cash to buy a CD player and then leaves it on the porch to get rained on, in the trash it goes. They learn two things from this. One, that nothing material is permanent. Two, that material items are not easily replaced. This is important for future reference.

Next, teens should be responsible for certain bills that they personally incur. Now I'm not saying charge them for every time they take an extra long shower, but some bills just would not be there if they did not incur them. For example, car insurance. This is one thing that teens sooner or later will have to have. If they have an income to provide payment for it, they should be responsible for paying it. Not only does this teach them where money goes, but it also shows them that they have to pay for certain privileges and gives them practice in paying a monthly recurring bill. A good reference for the future as all households have recurring monthly bills. If they do not have their own vehicle, but drive yours, have them pay the additional fee for you to carry them on your insurance or take out their own SR22 policy.

Opening both a checking and a savings account is a great way to teach teens to be responsible with money. Savings first, then if enough responsibility is shown, checking. Before you open the savings account, agree on a certain amount to be deducted from their earnings to be placed in the account weekly and a certain amount which must remain in the account for future usage. This can be done by perhaps assigning a percentage of earnings to be saved each week towards their chosen long term goal or a set amount the balance should not go below.

Before opening a checking account, explain the responsibility that goes with this. A few months before you open the account, sit down with them each time you balance the checking account and pay bills and have them learn how to do it with you. Let them try to do yours on paper while you do yours and check the work. Do this a few times so that they have a clear understanding of how it works before they get their own account. Another good idea is to explain penalties for abusing a checking account. Make sure they understand what happens when an account becomes overdrawn and the legal repercussions of writing a worthless check.

Take your teen household shopping with you. Explain to them how to compare brand quality vs. quantity in pricing and how to make the wiser choice based on their needs. When shopping for clothing, give them a budget amount and see if they can figure out how to get the best buys in the department store for the amount and type of clothing they are wanting to buy. Prioritize your shopping in your budget based on what you will spend more money on, i.e. food, paper goods, clothing, cleaning supplies. Explain the reasoning behind your priorities as an example: "babies have to have diapers, I don't have to have the brand name yogurt but I really like it so if I have enough left over after I buy necessary items, I will buy it."

Give them a reasonable monthly entertainment budget and allow them to spend it however they want. They will learn through trial and error when they blow all their money on the movies and snacks in one weekend then have to sit home the rest of the month when they could have saved and went to an ice skating party the next weekend with their friends. They will also learn to save long term, especially if they want something really expensive like a new stereo system or a surround sound television system, or a really, really outrageous gaming system.

Talk about long term goals with them, college, a car, their first apartment. Most teens think in short term future increments like, when i turn 18 in six months i can get my own apartment. Not many of them plan for monthly payments on housing, utilities, furniture or food for that matter. Which is probably the reason that many teens move right back in with good ole mom and dad a short time later.

One thing that worked really well with our oldest was charging them "rent". As soon as our teens started working, baring a set back such as poor grades, we started charging them a flat 30 dollar fee for rent. Now we didn't actually use this money, but rather opened a separate account which held their monies in it. We also agreed on a monthly matching of funds. At the end of the month, when our oldest budgeted her bank accounts and got a statement that matched we added that amount of our money to her separate account which we maintained. This worked well as both a reason to maintain her accounts properly and an incentive to save as each month the more money she had in her own accounts, the more money she got put aside into her "moving out" account.

When our oldest left home this past summer, she had a vehicle in her own name, paid off, paid her own first and last months rent plus deposit on her new apartment, had a house full of furniture to start out with, and still had a nest egg of two thousand dollars in the bank with both accounts combined. She might do ok, she might not, but we are of much sounder mind knowing that if there is an emergency, she will be able to handle it if she is too proud or embarassed to come to us.

Explain to teens how credit works. Show them how to calculate the percentage rate on a credit card before they start getting 20 offers a day for one in the mail. Teach them about buying on credit before they start doing it. Cell phones are good small credit accounts to start out with that teens can usually be trusted to handle on their own.

Teach teens how a loan works, interest rates and defaulting. If possible, have them take out a small personal loan with their bank account. Many banks have credit building loans that people use to build credit with a bank. These work by borrowing a set amount from the bank and attaching it to an account. Though the money never leaves the bank, interest is charged and their credit is given a good score rating when the payments are made on time over the period of the loan. It is also good practice for paying a recuring bill payment and when the loan is paid off, the money is available in the account. For more advanced lessons about loans, explain how a mortgage works. While they may not get it now, years from now when they buy their first home, they will be grateful for the beforehand knowledge, I know I would have been.

Let teens know where your money goes. It's no shame to share the great mystery of bill paying with your children. Teaching them about our financial mistakes will make it more likely that they will stay out of debt and have a healthy financial future.

Explain to teens how bonds work, the money market and loans. The more involved they are before they take off on their own, the more understanding they will have of how money lending works. Perhaps invest in one or more of these financial plans for them and keep them involved in the upkeep of it.

Teach teens about saving for retirement. IRA and 401 K plans are an excellent way to teach them how to invest. If your confident enough in your teens money management skills, let them buy a small money market account, use money that isn't designated for any specific purpose for this, that way if they don't do so well, it will be a learning experience rather than a drain on their college funding.

While we all want our kids to wear designer clothing and drive a brand new Beamer, that's not always possible (in fact its more likely to be impossible). One way to teach your teens about prioritizing money is to teach them how to shop frugally. If they have a particular clothing item that they must absolutely have but you can't afford, take them to a consignment shop. While some of us may have an aversion to second hand clothing, it never hurts to explain to a teenager why you can't buy them that 200 dollar pair of sneakers they want, but if they want to save their money for it, they can have it.

Teach teens how to make wise shopping decisions. If you plan a pleasure shopping trip and they have a set amount they would like to spend, let them. You can also help them learn how to stretch the almighty dollar by taking them to thrift stores, rummage sales and flea markets. This may not be the most popular route for your teen as they always want the newest latest fashions, in the future, designer jeans may not matter as much to them as buying groceries. They should be armed before hand with the knowledge of how to get what they want and what they need at the same time.

One important though less often thought about lesson is to teach your teen that they get what they pay for. Sometimes quality is more important than cost. Take for instance, school clothes. We often spends hundreds of dollars each year on items for our kids to wear to school, why do we do this? Because we don't want to buy jeans at the Dollar Store or similar retail outlet for 5 dollars a pair only to have them unravel in the washer two weeks later. It's worth it to spend 30 dollars at J.C. Pennies and have the jeans last until they out grow them a year later. You can also consign designer clothing when it doesn't fit and let them use the money of the sale to buy something else. While being thrifty can be essential, it is also important to understand the life of the item you are going to spend money on. Sometimes it is worth it to spend a little more money on items you want to last longer than the cheaper version because it isn't as well made and wont last as long.

Teaching your teen about money doesn't have to be difficult. It's teaching them about life. Teaching your teen to manage money is probably the single most important life skill you can give your teen because you will know that long after they won't need you to hug them when their latest relationship went south, they will be able to take care of their own financial stability. Exercising good money management skills can also bring you closer to your teen. Talking about their goals and ambitions even if over a check book is a great way to let them know that you want to be involved and that you care not only about their future but what the want as well.