Teach your teen the basics of money management

By glblguy

Teen girl with headphones
Photo Credit: stock.xchng

This article is part of the Money Matters for All Ages group writing project being conducted by the M-Network and other blogging friends. See the bottom of this article for the full list of participants and links to their articles. Please check back daily as I will update the links as new articles are posted! Also, if you are blogger and would like to join into the discussion, feel free!

I recently became the father of a teenage boy. I never thought it would happen. I kept telling myself teen years were a long way away, yet he continued to grow, continued to mature, and then suddenly he was 13. This event of course made be begin to think of things I had pushed back into the corner of my mind. Things like driving, high school, a job, and girls. It also dawned on me, that while we’ve taught him about money, taught him the value of saving, tithing and keeping track of his money, I had not yet taught all of the basics of adult money management. Talking to other parents and friends of ours, I started realizing this was a trend and it wasn’t just me. I was fortunate enough to have a fifth grade teacher who taught us all about money, the banking system, interest, loans, etc. My son hasn’t had the same opportunity. In thinking through this some, I thought I would share with you a few of the more basic, but critical items we need to teach our teenagers about finances:

Set up a checking and savings account

Most likely, your teenager probably already has a savings account. If not, you should set one up. I have one for each of my children at ING Direct. We’ll be setting up a checking account for our teenage son soon. While his only source of income at this point is allowance, various odd jobs he does for us and our neighbors, and gifts, I feel it will be valuable for him to start learning the basics of a checking account. This includes the use of checks, how to properly fill them out along with how to use a debit card. He has enough money now where placing his money in a free checking account (instead of the jar) would be safer anyway.

After creating the checking account, spend some time with your teenager doing the following:

  • Show them how to properly fill out a check and record the amount in the register.
  • Tell them how a debit card works and how to use it at the ATM to pull cash when needed.
  • Explain that if they use an ATM from another bank their may be a fee.
  • Help them sign-up for online banking and show them how to use it. Make sure they know to keep their credentials private and to use good passwords!
  • Stress the importance of saving, and show them how to set-up automatic transfers from their checking to savings accounts and make their saving automatic

These are all things we as adults take for granted, but your teen may not know. Make yourself available to answer questions and walk them through anything they may not understand and have questions about. If you don’t know the answer, it’s a great time to introduce them to the bank’s customer service number. Call and get the answer together or visit a branch together.

Help them set-up a budget

Setting up and managing a budget is probably something that won’t be fully necessary until they begin receiving a steady stream of income from a job. But even before they have a job, you can set up a mini-budget. Help them determine a % of their money they will save, a % they will tithe or give to charity, and a % they can spend. This will start good habits early.

Once they have a job and a steady stream of income, help them set-up a monthly budget. I would suggest doing something simple on paper until they grasp the concept, then moving over to something more sophisticated like a spreadsheet, You Need A Budget, Mvelopes Personal 3.5Mvelopes, or Quicken. Are these tools overkill? Maybe, but getting your teen familiar and in the habit of using these types tools certainly won’t hurt. Plus teens like using the computer and technology.

Manging a budget will be a key tool for not only teaching them how to control and track their spending, but it will be an insightful tool in teaching them the true cost of things. For example, before I got my first car, I thought all you had to do was buy it and drive it. I quickly learned that their were other costs such as: gas, insurance, registration, inspections, oil changes, repairs, routine maintenance, etc. The point here is budgeting will help them think through all of the costs associated with the things they want or have. Things often cost more than they seem at first.

Help find them a job

I started working when I was 15 and have worked every since. I think it is extremely valuable for teenagers to have jobs as soon as they can begin working. It teaches so many valuable lessons and keeps them busy and out of trouble. Idle hands are the devil’s tools – I see far too many idle hands in teenagers these days. Having a job early has the following benefits:

  • Generates their first source of consistent income
  • Teaches them how to work with others and for others
  • The basics of income, taxes, social security, etc.
  • Teaches them time management – With school, friends, and a job they will need to manage their time. This is something that will be a valuable tool for their future.
  • Teaches responsibility and accountability

I worked weekends initially. When I turned 16 started working 3-4 hours in the evenings after school. When I started college, I moved up to working 30 hours or so until I graduated. While it was tough sometimes, I wouldn’t go back and change it. It built character, responsibility and established critical social skills I don’t think I would have gotten any other way.

Who’s paying for what?

Now that the accounts are set-up, the basic budget is in place, and they are making money, it’s time to start talking about who is going to pay for what. Things to consider:

  • Who is paying their car insurance? By the way, put them on your policy, it’s far less expensive than creating a policy of their own
  • Who is paying for gas, oil changes, car maintenance issues?
  • Are you getting them a car? If so, is it a gift or do they have to pay you back?
  • Who is paying for college? Depending on your answer here, should have significant impact on how much of their income they should be saving
  • Will you continue to buy their clothes?

These are just a few things you will need to consider and discuss with your teen. On one hand, you certainly don’t want to overwhelm them with all the various costs of life, especially if their salary isn’t much. On the other hand they need to begin learning the cost of things. There is not right or wrong answer here, but these are things you should think through and tackle.

Final Thoughts

These are just a few of the more critical financial related things you need to talk to your teenager about. Teen years are critical for preparing your child to become an adult and to be able to live on their own. It’s time to start breaking down that insulation you’ve had around them for so long and begin exposing them to the realities of life. Make it a gradual process, removing the insulation a little at a time as they get older. While they may not like it, they will thank you for it later.

Teen years are also a critical time for instilling good financial habits. If you instill good habits in them now, they will continue these habits into their adult lives. Don’t miss this critically important time. Teach them what you know, discuss the mistakes you’ve made and the negative impact they’ve had on your life so they can learn.

Proverbs 22:6 – “Train a child in the way he should go, and when he is old he will not turn from it.”

What are your thoughts? What things do you think are critical to teach teens about finances? Do you have teens? If so, how are you handling this topic? Add a comment!

Here’s are the other articles in the Money Matters for All Ages series:



42 Responses (including trackbacks) to “Teach your teen the basics of money management”

  1. Debt Free Revolution Says:

    Great nuts-n-bolts practical advice…now to get my hardheaded teen to go along with it! LOL

  2. glblguy Says:

    Thanks DFR – I know the feeling!

  3. Lynnae @ beingfrugal.net Says:

    Good advice. I can’t believe I’m going to have to start thinking about this in a few years.

    I read something once (maybe a book by Kevin Leman?) where the author made each of his children be in charge of the family finances for one year (with lots of parental supervision, of course). I’m not sure if I’m willing to go that far, but it certainly makes you think about all the things kids need to know.

  4. glblguy Says:

    @Lynnae – I know, I didn’t think it would come either, but it did. He was so little just yesterday, now he’s all big :-(

    Nope, don’t want my kids in charge of the finances…they can’t even keep their rooms clean! Seriously, my concern there is I don’t like my kids knowing how much I make…At least not yet.

  5. Lynnae @ beingfrugal.net Says:

    I don’t like the idea of our kids knowing how much we make either, and that’s the reason I wouldn’t do it. On the other hand, if the kids apply for college financial aid, they’re going to find out how much we make. (That’s how I found out how much my parents made).

    So if I do change my mind, it will probably be a senior year of high school project.

  6. Ron@TheWisdomJournal Says:

    Great set of tips. My daughters are 14 and 13. Thankfully, their school teaches them a course called “Consumer Education.” It has information about writing checks, setting up budgets, recognizing scams, and overall, I’ve been very happy. Add in that the kids love the teacher (one of the coaches) and it makes for a great combination.

    I’m going to print this out and discuss it with my wife though. You included a lot of very useful information.

    Thanks!

  7. glblguy Says:

    @Ron – That’s great, I wish all schools would teach this kind of thing. Glad you enjoyed it!

  8. Cheapster Bob Says:

    I would not have them start a savings account as most kids only understand what they have in hand.

    For my own child I give her a 25 dollar monthly allowance. She has decided to spend 10 of that a month on stupid text messaging for her cell phone. That is her choice but she wisely agreed to put another ten into her 529 college savings account. The remaining five bucks she can enjoy and spend at Claire’s on some junk earrings and such.

    I also pay her for good grades and achievements. She receives ten dollars per A, five dollars per B, she loses five dollars for each C and ten dollars for any D or F.

    I also am paying her 25 dollars (to go into her 529) for reading the motley fool’s guide to money for Teens. She is actually enjoying the book and it is inspiring her to save.

    I’m not for savings accounts for teens because the only one they need is their 529. Their education has to come first and they also need money in hand to spend and enjoy the fruits of their labor.

    I also did not see mention opening a Roth IRA for your children. This is a shaky technique but if you employ your child for things other then chores and pay them they can open an IRA. As soon as your teen gets their first job they have to open an IRA as this will provide a great security blanket as they enter the world.

  9. Elizabeth Says:

    glblguy,

    I’ve been doing my own little series on Kids & Money on my own blog. I have a 15-yo daughter and, as you know, a 13-yo son. It’s been our habit since the kids were babies to have dinner-table discussions which, over the years, grew to be a valuable extension of our homeschooling efforts. We’ve covered all sorts of financial and economics topics. Just last night we discussed “scales of economy” and “diminishing returns.”

    In line with my educational philosophies, we waited until our children were 7 before introducing allowances and 8 before they made any independent purchasing decisions. But that late start didn’t delay later lessons. Our daughter’s had a checking account with a debit card for a few years now. Our son has expressed less interest in buying things and being independent so we’ll wait a few years more before opening his checking account.

    My kids know all about compounding interest, credit cards, balancing bank statements, scams, hidden terms, and fine-print. They even know a great deal about mortgages, fixed and adjustable interest rates, and double-entry accounting.

    I recently started using the YNAB budgeting program and my daughter, in particular, loves it. It has streamlined and automated her clothing budget. She’s interested in maintaining her own budget using the software but it will have to wait until this summer after school is out.

    I love the idea of having the kids keep the family finances/budget! I’m definitely going to find some way of adapting that idea for our family. I personally have no issue with our children knowing how much we make. I believe that involving them even more in our day to day finances would give them greater incentive to spend wisely and save.

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