Gather Little by Little

I’ve learned a great about personal finance over the years. Much of it through writing here on Gather Little by Little, reading other personal finance blogs, and reading books. Unfortunately, the majority of it I’ve learned the hard way, by making mistakes and suffering the consequences.

In order to try and keep our children from having to learn the hard way, my wife and I have been sharing information about our finances and trying to teach them responsible money management. This is particularly true of my oldest son as he has now entered his teen years (he’s 13).

Below are just a few of the common teen money management mistakes I’m aware of. I’m sharing these with my son in hopes that he won’t make the same mistakes:

Not understanding the overall costs of things

When you are young, it’s easy to see the upfront cost of something and think that is the only cost. A car is often the first time the reality of this is felt. While the purchase price a car is a large chunk of the cost there are many other associated costs teens may not consider such as maintenance, gas, and insurance.

This whole topic came up in discussion with my 13 year old this week. He loves taking a long hot shower in the morning. As a result, he usually receives a loud rap on the bathroom door after about 10 minutes from me if he isn’t out. I received our water bill this month, and as a result of his and his brothers long showers my water bill was significantly higher this month. I called him upstairs and reviewed the bill with him. He was first surprised by the cost of water and further surprised as I also educated him on the fact that sewer charges are a percentage of the water cost which almost doubles the bill. While I’m not sure I’ve fixed the long shower problem, it certainly did make him more aware.

Make sure you take advantage of opportunities like this to educate your teens and children. Make them aware that the perceived cost of goods and services don’t always equate to the real cost.

Buying more than you need

Once teens begin earning some money, they love to spend it. I can certainly understand that and remember the freedom of having my own money and being able to buy things for myself and not have to ask permission. As new spenders though, teens often buy more than they really need.

Here is just one recent example in our family. My teenage son recently took a school trip to Charleston South Carolina. The kids stayed in a hotel and shared rooms to cut down on costs (boys on one floor, girls on another). My son didn’t want to sleep in the same bed with his friends, nor did he want to sleep in a sleeping bag on the floor (which is what  I thought he should do). Instead, he decided to purchase a cot. We headed to the local store and the lowest cost cot we could find was $50.00. I did everything I could to convince him to not buy it, but left the final decision to him since it was his money. He ended up buying it. He has used it maybe twice since buying it, but he sure has come up with other things he could have used that money on.

This served as a good opportunity to talk about how it’s important to relate the cost of a purchase against the value you get out it and help him understand the basic economic principle of opportunity cost.

Buying to impress and focusing on brand

This is probably the biggest mistakes and I personally dealt with this one as well when i was a teen. In my teen years, I always wanted Levi jeans, Reebok shoes, Duck head shirts, and Members Only jackets (yes, showing my age here). My son is no different and I’ve noticed as he has gotten older his interest in name brand has grown. Right now he likes Aeropostale clothing and DC shoes. He also thinks the only cool MP3 players are iPods and the only cool phones are iPhones.

I know with the social pressures of school this is really a losing battle with most kids, but do your best to show them they can have cool clothing without paying the extra cost of name brands. If they aren’t convinced, help them shop for bargains so they wear name brands without spending all of their hard earned money. I love Nautica clothing, especially their shirts, but I seldom pay more than $10 for them. I wait until they go on sale.

Thinking in the moment and not for the future

Related to all of the above mistakes is thinking in the now and not for the future. My son definitely lives in the now 99% of the time. Although I’ll have to say now that he has an obsession with Jeeps and wants a Jeep he’s definitely started to consider how he is going to purchase one and considers that before making spending decisions. I only wish he would have started thinking that way when he was younger.

This certainly isn’t atypical for teens and I would suspect we were all guilty of living in the moment when we were younger. While I don’t think it’s possible to just turn this off, I do believe we can help them think through purchase decisions and the trade-offs of having something now vs. waiting or saving that money for something more expensive (like a car) later down the road.

Help your teen think though some of the things they may want or need in the future and make them aware of how much those things will cost them.

Not budgeting

I believe that budgeting is one of the most important concepts in maintaining control of your finances. Budgeting allows you to control your spending and know where your money is going. Whether an adult or a teen, the benefits apply. I believe that teens should budget just as adults should.

Helping your teen budget is really easy, and even more so before they get a job. When they have some cash, just sit down with them and help them think through how they will allocate it. Some percentage as a tithe, some percentage for savings, and then allocate the remainder for purchases they would like to make. Each time they get extra cash, allocate that out to the budget categories.

One they get a job, help them create a budget for each paycheck. At this point, I would even recommend they begin picking up some of their expenses. Maybe not all, but at least some like clothes, gas, insurance, etc. This will help prepare them for the real world and begin learning to be financially responsible at a young age.

What mistakes can you think of? Do you have some tips for teen money management? Have a good example from your past or maybe from your teenager you like to share? Add a comment!

Photo by: subewl