Book Two in the Dollars & Sense Books Series
Teens and Money: Passing Along Your Values
Way back in 1964, the legendary folk musician Bob Dylan sang, “You better start swimmin’ or you’ll sink like a stone, for the times they are a-changin’.” His words ring true today more than ever, as technological change seems to occur at warp speed, with far-reaching effects. And where technology goes, so goes money. As parents, we cannot know exactly what the future will look like in five, ten, twenty years. But it is our responsibility to prepare our kids for that future—in Dylan’s terms, to help them “start swimmin’.”
Here’s what we know for sure: when they become adults, our kids will need to be sensible money managers. They will have to save diligently, spend sensibly, and invest wisely to be successful. Luckily, these are lessons we can teach them early in life—and the earlier, the better. Book 1 in this Family Finances series, Allowances, Dollars & Sense, laid out the Making Allowances System: guidelines and tools to teach younger kids about money. In case you missed it or simply need a refresher course, here is a recap of the key strategies presented in that book.
By the time your kids get to be teenagers, you have probably worked out an “allowance system” of your own. Providing allowance to your teens is an important tool to teach them the following financial lessons:
- to save money (they should aim to save 25 percent)
- to become familiar with banking (deposits, withdrawals)
- to set personal goals and save money for particular items
- to maintain good savings habits while using a debit card
- to spend sensibly on vacations and for special holidays or events
Book 1 set out an Allowance Contract for younger children. This level of formality may not be suitable for a teenager, but the following principles still apply.
Allowance is received for being part of the family, to teach your teen the basics of good money management. It is not a treat to be given only for personal achievements or withdrawn as a form of discipline. Chores? Those are also part of being in a family—but are not a prerequisite for allowance. Experts believe in keeping the two separate. If your teen routinely fails to help out at home, consider withdrawing privileges such as “screen time” until he becomes more cooperative.
As for how much allowance to give, provide only enough for basic weekly expenses. Actual amounts will depend on your family circumstances. Based on the guideline of $1 per year of the child’s age, a 15-year-old would receive $15 per week, or perhaps even $20 if he commits to save $5. Encourage your teen to do extra jobs for the neighbors or at home to top up their weekly payment. One final tip: It’s best to dole out allowance, in cash, on Sunday evening or Monday morning, so the money does not get “blown” on the weekend. Until your teen has developed good money habits, cash is preferable to direct deposit from your own bank account.
According to a recent article in USA Today, “16- to 18-year-olds are more likely to own an iPod, cellphone or computer than they are to have a savings or checking account.” This is disturbing news for a generation soon to be young adults. Since “How to use a bank” is not a standard school subject, we need to ensure that our teens understand how banks work and how they can use them safely and profitably.
Your teen should be familiar with basic banking services by the time she enters high school. Having a short-term savings account that she can access with a debit card will help cement basic money concepts. Even when cash is readily accessible from the bank, she needs to learn how to spend responsibly.
Saving for the future
The concept of “saving” needs to be more than a math class problem to your teen. Teach him to divide his money into short-term, medium-term, and long-term savings. Each category has a separate purpose, as follows:
Short-term money (50%) for small day-to-day purchases. Ten percent of this money should be allocated to charity (see page <OV>).
Medium-term money (25%), saved in the bank, for larger purchases such as clothes, sports equipment, or vacations.
Long-term money (25%), invested in mutual funds, for large purchases such as a car, postsecondary education, or a special trip.
Explaining and establishing these three categories of savings for your teen will help him become a better money manager, able to think beyond satisfying “instant gratification” to achieving future dreams and financial goals.
Respect for property
Property rights are something children should learn at a young age, but these principles may need to be reinforced for teen-agers. After all, teens, by nature, tend to test the limits of socially acceptable behavior. As they become more independent, they can challenge authority and succumb to negative in-fluences. All the more important, then, to be clear on where you stand in regard to property rights. Here are the highlights from our own family “policy”:
Everyone makes mistakes, parents included, and the only crime is to fail to learn from them.
Look after your own property, and look after other people’s property as if it were your own.
Take responsibility for your mistakes. If you did it, admit it.
If you break it, fix it. If you lose it, replace it. If you find something, turn it in.
You may wish to add a few points of your own to this list. But rather than being what parenting expert Barbara Coloroso calls a “brick wall parent”—and sticking to set rules in every situation—I suggest you take a more subtle approach. “Making allowances” for kids (including teens) may be the best way to help them learn from their mistakes, as long as they subsequently correct their behavior. If they continue to disobey rules, consequences will naturally follow. Remember that your ultimate goal is to teach your teens accountability and responsibility.
Consumer spending and charitable giving
Teens often have more “wants” than their budgets will allow. They are subject to peer pressure and are major targets for marketing strategies that encourage them to buy the latest, greatest, hippest brands (see also chapters 11 and 12). In many ways, this is the best time to develop good consumer habits, for as long as teens have limited funds, they are required to make choices.
Provide guidance when asked and lead by example (e.g., in comparing prices and quality before buying big-ticket items). Otherwise, stand back and let your teens make and learn from their own spending decisions. If they choose poorly, it’s a good bet the experience will stay with them and inform future spending decisions.
One important spending lesson you can teach your teens is the value of charitable giving and volunteer service. They could contribute 5 to 10 percent of their allowance to a local charity of their choice each month. They could also contribute in other ways—through donating used goods and clothing or through giving their time in volunteer community service. The latter is a hands-on way of “giving back” that builds relationships, reinforces empathy, and boosts self-confidence. Encourage your teen to find an organization that can use his particular talents or skills. If he is shy, perhaps he could volunteer with a parent or a peer. Remind your teen that for many prospective employ-ers, volunteer experience counts just as highly as paid work, illustrating both resourcefulness and responsibility.
Continue to Make Allowances
The foregoing has touched on the key points outlined in my previous book, intended for parents of children aged five to twelve. This book builds on those guidelines, specifically targeting parents of teenagers. Of course, I will be the first to admit that teaching teens is not the same as teaching younger kids. Your teen may begin to greet your advice—including financial advice—with skepticism, if not outright disdain. If, in response to “lessons on credit” or discussion of long-term savings, you get the raised eyebrow and “What do you know, anyway?” stare, do not give up! Try again another day and keep the conversation going.
Writing in the Wall Street Journal in May 2012, Emily Glazer reports that “when it comes to understanding basic economic concepts, American high-school students received an average grade of 48% in a study from the Council for Economic Education, an advocacy group.” According to my math, 48 percent is not a passing grade. We can do better! Teaching your teens about finances in an open, respectful, hands-on manner is vital to their future well-being, even if they do not understand or appreciate this fact right now. This book aims to help you take on this important challenge.
Strategies for a Successful Future
To return to the Dylan lyrics that opened this introduction, when, with your guidance, your teens “start swimmin’ ” financially, this will be a blessing for all concerned. Through trial and error and real-world experience, your kids will have learned the risks and rewards associated with money management. Doing their own banking, saving for larger purchases, and spending their own money will make them more confident, more independent, and more resourceful—in short, more financially literate. Making small mistakes will help them become smarter consumers and better decision-makers all round.
As their parents, meanwhile, you can find comfort in the fact that you have given your teens a sound foundation from which to launch into the adult world. Of course, as for most things in life, there are no guarantees. But having introduced your offspring, the next generation, to such concepts as consumer credit, charitable giving, and long-term saving, you know they will be well prepared to handle their personal finances as young adults.
Giving our teens the gift of financial literacy is an important legacy, because the cost of living will only rise in the future. I’m no fortune-teller, but here’s the financial future I envision for our children (and grandchildren):
- postsecondary education will become more expensive
- home ownership will continue to be a goal for young families
- a mortgage will still require a good credit rating
- small businesses will require initial capital investments to be viable
- personal bankruptcy, with its negative effect on credit rating and accompanying social stigma, will remain an option of last resort
For all of these reasons and more, it makes sense to teach your teens the basics of money management before they leave home. I hope this book will help you in that quest. Everyone is at a different stage when it comes to financial knowledge, so pick and choose the strategies and tools that make the most sense to you and your family. Check out the additional resources at the back of the book, and please don’t hesitate to contact me with your money questions, parenting stories, and suggestions. All of the worksheets in all the books in this Dollars and Sense series are available on this page. You can reach me by e-mail at [email protected]. I look forward to hearing from you.
©Paul W. Lermitte