Do you feel sometimes like you are a cash machine for your teenager? Do you only to get a civil conversation and smile out of them when they need money for something?
Helping your teenager learn the value of money and how to manage their own money is an important task for those parenting teenagers – not only for your teenager’s sake.
Most people learn money management from their parents one way or another. Taking the time to actively educate your teen and helping them develop good financial habits can literally set them up for life. Trying to model good spending and saving habits to your teenager might even improve your own financial disciplines!
Teaching teenagers to manage their money requires 2 things – they need to have money, and they need the skills to look after it. Parents play an important role in both areas.
Give Them Money
The easiest way to avoid being your teenager’s personal cash machine, along with the frustration and arguments associated with it, is to provide your teen with a regular fixed income. Ultimately this could be through a part time job, but don’t wait until then. As soon as you think your kids are able to grasp the basic concept of money, it is good to start giving them an allowance. By the time your child turns 13 they should be very familiar with receiving a set income.
When you set your teen’s allowance be very clear about what it does and doesn’t cover. What clothes are included? Are presents for family and friends included? Are music or sports fees included? Do they have to pay board? When out with the family who buys the snacks? The clearer you are up front, the easier the process will be in the long run.
Once you have decided on what the allowance will and won’t cover, make sure the amount you agree to pay is reasonable. It needs to be enough to cover the expenses – all the expenses including savings etc. If you set it too low you will only succeed in frustrating your teenager and having regular arguments about money. Far better to be as reasonable as possible from the outset.
Many families also link allowances or pocket money to chores. This can be problematic.
The risk of linking all your teen’s income to chores is twofold. Firstly, it teaches them that they can buy their way out of responsibility by choosing to forgo money to get out of work. Secondly, the lazier your teenager the more arguments you will end up having over money because they will have none.
This is a decision for each family, but I strongly recommend having chores that are not linked to money, and having a percentage of a teen’s allowance not linked to chores.
If your teen wants more than their allowance for any reason try to think of jobs around the home that they can do for extra money (if you can afford it.) This is simple way of teaching teens the value of money, and you might get to put your feet up a bit more!
Like most aspects of raising teenagers regular negotiation is crucial. As teens get older their expenses will increase – it’s a fact. The other fact is the general cost of living for everyone increases over time. For both these reasons you need to build in review periods and renegotiate allowance amounts.
When or if your teen gets some type of paid work outside the home is a specially important time to renegotiate the amount of the allowance and what it does and doesn’t cover.
Give Them Skills
Once your teenager has access to regular money they need to learn how to manage it. Ultimately they will develop habits and attitudes towards money one way or another. The more intentional you can be in equipping them with sensible attitudes and practical skills the better it will be for them and for you.
A great principle to teach your teen from a young age is to “Pay Yourself First”. This means the first thing to do when you get paid is to take a fixed amount (usually 10%) and give it to yourself, either in a special savings account or in an envelope kept hidden somewhere. Teaching teens to think of saving as Paying him or herself encourages them to think more positively about saving. It also is a great way to make saving a priority.
Another simple way to motivate your teen to get in the habit of saving is to encourage them to set goals. This isn’t usually that hard. Most teenagers I have met always have their eye on something they would love to have. Whether it is a new iPod, a formal dress, the latest gaming console, a trip away with their friends, and eventually their first car there is never a shortage of goals for teens to save for.
Depending on your circumstances, you can create extra motivation for your teen by agreeing to match their savings for a particular target dollar for dollar. The added incentive of only needing to save half the money required will motivate most people.
Teach your teenager to manage their own bank account also. Learning how banks work is important. When you think they are old enough help them set up a bank account in their own name. You might like to start with an account they can only deposit into and then as they get older they get access to more of their funds.
We all know the secret to achieving any financial goal is budgeting! For some people budgets are elaborate detailed documents, for others they are a vague idea of how much is left in the bank until the next pay. Whatever the method knowing how to budget is a skill vital to being a responsible independent adult.
Setting and sticking to budgets does not come naturally for many teenagers (though some seem to be born with innate financial acumen.) The earlier you start teaching your kids about matching their in-comings with their outgoings the more adept they will be.
Giving your teenager an allowance monthly instead of weekly, if possible, is a great way to instill the principles of budgeting. Even is they don’t document the process, being able to make one lump sum last for over 4 weeks requires them using basic budgeting skills.
It is worth sitting down at some point with your teenager and taking them through what an actual budget looks like. Even if they don’t put pen to paper for a budget ever again, seeing the process is helps them comprehend the basics of managing money. Working through a written budget helps to make abstract ideas concrete and visual, which is what young teenagers need.
Debt & Credit
Growing up in the 21st century it is essential for young people to learn how to manage debt. Living in a cash economy is fine for teenagers, but it does not equip them to deal with all the credit opportunities they will be exposed to as adults.
For this reason it is not always bad when your teen asks for an advance on their next allowance, or wants to borrow a small amount of money, as it teaches them about the obligations and dangers of debt. Adolescents are not always good at thinking about the consequences or planning a long way in advance. Being exposed early to the concept of “spend now pay later” in small amounts is a great low risk way of for learn about credit and debt. This only works if as your teenagers creditor you are strict about following through on collecting, otherwise you will teach the wrong thing entirely.
The inability to plan, combined with poor impulse control, are two reasons why teenagers should not be given credit cards. The risks are too great. Similarly post-paid phone plans for teenagers should also be avoided in favour of pre-paid .
Learning to be generous like most things is much easier to as a young person. Teaching your kids from be generous is a great value to instill. A simple way to do this is to get your teens to put aside 10 % of what they earn in order to donate to a charity, a sponsor child, a church, or some other cause. I know this is not for everybody, but if you are considering it let me encourage you to follow through. The act of giving to others cultivates noble traits such as gratitude, compassion, kindness, and self-sacrifice – the world won’t be worse off with more of these type of people.
If you do want to encourage your teen in this way it is best to make them actively hand over their 10%, as opposed to you just holding it back from them. Actually having the money and then choosing regularly to give it away is much effective than a form of direct debit.
So that is my basic guide for helping teenagers manage money. If you have more tips or ideas please share in the comments section below.
You can download my Basic Budget for Teenagers tool here. It is free (no email required), but requires a spreadsheet program like MS Excel or Open Office to use.