When Jana M.’s fourteen- and sixteen-year-old sons were younger, she gave them a monthly allowance and told them to put some in savings, some in their wallet, and a small amount toward something charitable. It didn’t work.
When her son Grady, sixteen, started working, his allowance stopped, and the money he earned went right into his wallet. Looking back, Jana realized she hadn’t taught her kids to make their own responsible money decisions.
“It may have been more effective sitting them down and getting their input so they felt like part of the process and, in turn, more accountable,” she says.
With Grady’s “zero balance” savings account looming over both of their heads, she’s likely right.
Saying the Words: Telling Your Kids All About Money
Sure, no one likes to discuss money—it’s considered private. But with a looming recession, housing slumps, and teen stars living a conspicuous high life, having the money talk with your teen is more critical than ever.
What is money for? Why do we care so much about it? When do you save, and when do you splurge? When do you give away money to others and when do you keep it for yourself? What’s the difference between needs and wants? These are all significant questions that rarely—if ever—get asked and answered in most homes.
Using a Gradual Approach
A 2008 Charles Schwab Parents and Money survey found that sixty-nine percent of parents feel less prepared to give their teen advice and guidance about investing than they do about sex. Relax. You don’t have to address everything money-related with your teen. For now, just cover the basics.
“First of all, understanding the value of a dollar, using it wisely, and budgeting is critical for every young person,” says Carrie Schwab Pomerantz, chief strategist of consumer education at Charles Schwab & Co., Inc. “The best way to teach a child about budgeting is by giving them an allowance at a young age. You have to have a conversation about how the allowance is to be spent.”
You can suggest your teen use her allowance for some of the items you normally purchase, like shampoo, haircuts, and movies. They can also appropriate some as “fun money” and some as savings for a big-ticket item, like a new car or contributions to their college fund.
Giving Teens Their Own Accounts to Manage
A good way to get your teen in the habit of budgeting and spending wisely is to open their own checking and savings accounts with you as a joint or custodial account holder.
Grady, for example, says that getting bank accounts have helped keep his spending from going overboard.
“I try to watch what I’m spending and actually look and see how much I have in the bank,” he says.
Before, he would just spend until he was broke, and not know where his money went. Another must-know topic is credit.
“Learning about a credit card is vitally important today, in particular with the amount of debt in our country and the number of bankruptcies,” Schwab Pomerantz says. “Kids [can] practice using a credit card with a low balance, paying it off on a monthly basis, understanding the fees and penalties that go along with it if you don’t pay it off, and understanding how interest can accrue so quickly.”
Distinguishing Between Needs and Wants
When telling your teen to put aside savings and budget her money, expect resistance: “If it’s my money, why can’t I buy what I want?” That’s the time to chat about needs versus wants, says Jayne Pearl, author of Kids and Money: Giving Them the Savvy to Succeed Financially. You can explain it simply.
“We need shelter over our heads, we need food, clothes, and medical attention when sick, but everything else is pretty much a want,” she says.
This is tough for teens to understand. To them, “want” automatically means “need.” Preston B., a father of a thirteen-, eighteen-, and twenty-one-year-old, lives in an area where kids tend to get new BMWs at age sixteen. When his older kids turned sixteen they got “old” new cars, and they grumbled.
“Emphasize what they are getting if they focus on what they’re not getting,” Preston says. “You’re getting a free car and insurance. Maybe it’s five years old, but it’s a nice car.”
Another way he’s torn down any sense of entitlement his kids may have is by not showing any himself.
“By having a very consistent pattern of not buying the most or the best of anything, they just learn that that is how our family lives—we don’t spend the maximum that we could on anything,” he says.
Model Good Money Habits Yourself
Teaching by showing and doing is probably the easiest way to help teens learn.
“There are many different ways that you can expose your teen to the world of finance through your own day-to-day activity,” Schwab Pomerantz says. “You can show them your IRA statements to show how you’ve been saving on a disciplined basis and choosing your investments.”
Jessica J., seventeen, says her parents did this.
“They would sit me down, and we’d go through all the bills,” she says. “I knew my parents made a lot of money, but, until then, I didn’t know we also had a lot of bills.”
And forget about “do as I say, not as I do.”
“You can constantly talk about being financially responsible, but if you aren’t actually doing it yourself, your message won’t get through,” Schwab Pomerantz says.
Learning from Money Mistakes
Tim P., a father of a fifteen-year-old and a preteen, teaches from his mistakes.
“I’ve made my share of money mistakes—mostly those that revolve around credit cards—and I’m very candid with my kids,” he says. “We talk about good debt (real estate, for instance) versus bad debt (credit cards used unwisely). I’m trying to instill the sense that money is just a thing—neither good nor bad—but how you use it can be positive or negative.”
Let your teen learn from her mistakes, too. If she burns through her allowance before the middle of the month and comes to you for more, say no!
“If you bail them out, they are more likely to do it again,” Schwab Pomerantz says. “However, if you let them experience the repercussions of making a mistake, they are less likely to make that mistake again.”
Jessica knows this.
“The first couple of times I splurged my paycheck away, my mom gave me extra money to do the things I needed,” she says.
So she figured she could do what she pleased with her paychecks and turn to her folks for extras. The third time she went to them for money? No deal.
“I then realized I had to do what I needed to do with my own money,” she says.
Even though teens do learn from mistakes, it doesn’t mean you shouldn’t try to prevent them. When Ben C. started making money as a teen, he knew exactly what he wanted to do with it.
“I wanted to just spend the money,” he says. Fortunately, his parents wouldn’t allow that. “My parents instilled a strong discipline to save and invest the money wisely.”
It’s paid off. Ben became a millionaire entrepreneur while in his teens and now, at twenty-three, handles his own money.
“My money is doing just fine—thanks to the values my parents have taught me,” he says.
That’s the goal, Pearl says: “You want to get teens to where they’re able (and willing) to make responsible money choices as adults.”
Once your teen is able to realize his mistakes and make steps to correct and prevent them in the future, give yourself a pat on the back. You’ve created what will likely become a financially savvy adult!
The Evolution of the Money Talk: What to Say When
Sanyika Calloway Boyce, author of Teen Money Tips: Simple Steps for Banking, Saving & Making Money offers these suggestions:
- At 10: Limits and spending rules
- At 12: How much things really cost and the “value” of a dollar
- At 15: What credit is and how it works
- At 16: What the deductions are on their paycheck
- At 18: What a credit score is and its importance
- Anytime/all the time: Needs versus wants, budgeting and the importance of saving and investing
Things Not to Say to Your Teens About Money
- “We’ll never get ahead.”
- “All we get in the mail is bills.”
- “We don’t have money for the bills because we paid for your school clothes/karate class.”
- “Credit and/or debt are evil.”
- “Do whatever it takes to make money.”
Tamekia Reece is a writer in Houston, TX. She’s written on parenting topics for Parents, Woman’s Day, Parenting, and Fit Pregnancy. Visit her at www.tamekiareece.com.