Financial Resource Center

Money Management

Teach Teens Financial Responsibility

by Dianne Molvig / January 7th, 2013


When your kids were little, you frequently heard requests such as "Will you read me a story?" or "Can we go for a bike ride?" But your offspring have morphed into teenagers, and their pleadings now often involve asking for money—your money. Your daughter has her heart set on a pair of $100 designer jeans, or your son is convinced he needs a pair of $200 Nike Zoom Rookies. How can you tame cash demands and avoid money wrangles, while also instilling in your teen a sense of financial responsibility? Does your teenager even want to learn about this? Apparently, most do. A 2011 survey by Charles Schwab found that 75% of 16- to 18-year-olds said learning more about money management is one of their top priorities. Experts offer a few suggestions about how to teach your teen to be financially responsible.

Make the most of "teachable moments"

Look for opportunities in your day-to-day interactions when you can slip in some sort of money "lesson." For instance, "If you're out shopping together, you can talk about your own shopping choices or why you're delaying a purchase," says Amy Crowe, educational and community liaison at Summit Credit Union, Madison, Wis. In the process, your teen may pick up a few notions about smart spending and saving practices.

Provide hands-on experiences

These types of experiences have more impact for teens than just listening to you talk. When they do something, they connect with the information and retain it better. "Instead of you telling them, 'The moral of the story is...' they experience the story and find the moral on their own," says Laura Busque, membership manager at the Ohio Credit Union League in Columbus.
Three-fourths of teens said learning about money management is one of their top priorities.
For instance, have your teenager make the grocery list for the week. At the market, he'll see for himself how big a chunk of the family budget goes toward groceries. That may instill some appreciation for what's often taken for granted. "Maybe he won't waste a quarter-bottle of Gatorade," Busque says, "once he knows how much it costs."

Model money monitoring

Sit down with your teen to go over her list of expenses for the week, by either reviewing her own spending records or the online statement for her credit union checking account, if she has one. "You can go through the transactions together," Crowe advises, "and ask, 'Was this a need or a want?' Or 'I notice your balance got really low here. How could you have changed some of your purchases?' "[When you do] this with your teen, she learns to monitor her accounts frequently, a good habit for a lifetime. She'll know where her money is going and bypass avoidable expenses like overdrafts.

Introduce plastic, perhaps

Some financial experts believe teens should operate on cash only. Others think a debit card can be a money-management tool and that using one provides good practice for using credit cards later. In the end, "You have to gauge where your teenager is," Crowe says. "Some kids aren't ready developmentally" to properly manage a debit card.
Look for opportunities in your day-to-day interactions with your teen when you can slip in some sort of money "lesson."
You could give your teen a prepaid debit card from the credit union so there's a spending limit. And, again, sit down together frequently to monitor transactions. Also, be sure your teen knows the difference between a credit card and a debit card. "That's probably one of the biggest questions I get when I go out to teach high-school students," Crowe says.

Talk about the future

As your teen starts thinking about life after high school, you can discuss future financial needs. What could she start saving for now? If he's going to college, what share of expenses will you expect him to cover with his own money? Older teens also begin to seriously weigh their career options. This is a good time to have a conversation about retirement savings, Busque advises. "The earlier you talk about that, the better," she says. "You can talk about your own retirement savings goals, and do so in a way that makes it exciting." Too often, she notes, parents don't want to discuss such matters at all. So teens grow up without comprehending that a sound financial future requires planning ahead. Share with them some of your own dreams and plans for the future—and what you're doing to prepare and why—so they get the idea.

Consider going beyond an allowance

To teach his two teenagers, now adults, about financial responsibility, Milwaukee physician John Whitcomb deployed a method that's been in his family for three generations. Other parents' inquiries about his successes led him to teach parent-teen groups in his community and eventually to write "The Sink or Swim Money Program: The 6-Step Plan for Teaching Your Teens Financial Responsibility" (also published under the title "Capitate Your Kids: Give Your Kids a Financial Head Start").
Teach your teen to monitor accounts and expenditures frequently—a good habit for a lifetime.
Whitcomb's basic strategy involves giving your teenager control over the money you'd normally spend on him or her. "You write a contract every year," he explains, "and as your teen gets older and has different needs, you change the deal." You might start with clothing expenses. Consult with your teenager to figure out how much his or her clothing costs each year and then agree on a dollar amount you'll provide. As your teen becomes more proficient and interested, you can expand the annual contract to include other expenses, such as hobbies, music lessons, school fees, and so on. "The benefit for parents is that you now have a fixed cost," Whitcomb says. "And your teenager gets a fixed income. This isn't about allowance; this is life. The 'allowance' will be what's left over. It's your teen's reward for doing a good job at being frugal." Under this system, the more frugal teens are, the more they have left for discretionary spending. As just one example of such frugality, Whitcomb's son once decided to forgo the typical high-priced tuxedo rental for his high school prom and instead went shopping at a thrift store, where he bought a suit for $1. And it was all his idea. The beauty of this approach is that parents no longer have to play the role of guardians of the family coffers. For the teenager, the benefit is real-life experience, with parental guidance as needed. Money wars cease, Whitcomb notes, or at least drastically diminish. "Teens don't learn if they're frightened or angry or stressed out," he says. "They learn when they're interested, focused, and are collaborating with the people who love them."
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