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Teens not only need skills for dealing with money, they desperately want these skills. Yet they aren't interested in learning about money to become "financially responsible adults." They're interested in gaining more independence and freedom.
The key to helping your teens become money smart begins with tapping into WII-FM: “What’s in it for me.” Use the things they want, such as a car, a college education, or a place of their own, to share valuable lessons in areas like comparison shopping, estimating costs, delayed gratification, and saving toward a goal. Here are eight skills your teen will be eager to learn:
1. More money autonomy – By about seventh grade, kids are becoming more sophisticated about decision-making, so they’re able to manage money more effectively. Allowances should now cover some needs as well as wants. For example, you can have your teen pay for school lunches, birthday gifts, and even school clothes. Make sure your child’s allowance is sufficient to handle these expenses and that they are still expected to do basic chores to receive it. And allow them to make mistakes. If your seventh grader blows all of her lunch money on Monday, let her make peanut butter sandwiches to take to school for the rest of the week. That will create a much more memorable lesson than bailing her out!
2. Getting their first job – Most teens are starting to assess their abilities and interests and how those relate to specific occupations. So it’s a terrific time for them to start earning money from sources other than Mom and Dad. But if they’ve never applied for a job before, teens have no clue how the hiring process works. Begin by showing them how to research job openings and decipher job descriptions. Encourage them to keep their eyes and ears open, because many jobs are landed through casual remarks or encounters. Talk to your teen about job applications and the importance of putting their best foot forward while remaining honest about their skills and experience.
3. Becoming smart shoppers – Typically, teens want stuff. They’re excited about the latest technology and fashions. And now they’re old enough to head out to the mall by themselves. But teens, just like the rest of us, don’t want to get scammed, conned, or manipulated. Make sure they understand how advertisers are trying to get them to buy things they don’t need, or items of lesser quality. Setting a good example is important. If your teens see you comparison-shopping, delaying purchases to get high-quality products at the best prices, then high-fiving one another for stretching your dollars, they’ll value those traits.
4. Credit and credit cards – The Credit CARD Act of 2009 prohibits anyone under 21 from getting a credit card, unless a parent, guardian, or spouse is willing to cosign, or the underage person has proof of sufficient income to cover the credit obligation. It’s great that we no longer have credit card companies flooding college campuses to entice students into debt with pizza and T-shirts. Yet, how can we teach children about credit if they can’t experience it? One option is to get a prepaid debit card for your teen. This is similar to getting a learner’s permit before getting a driver’s license. A prepaid debit card will give your teen experience using plastic at very low risk, because the maximum they can spend is what you’ve loaded on it.
5. Preparing to live on their own – When is the time to start this discussion? The earlier the better! Not because you’re trying to get rid of your teen, though eventually, don’t you want the house to yourselves again? But start the conversation early, because living independently is an expensive, complicated venture. If it’s something they want to do soon, they’ll need to set it as a goal and start saving for it.
6. Buying a car – It’s an exciting step toward independence, and it can be very instructive. In some families, a teen is responsible for paying for their own car and covering all the costs involved.
Other families pay for the car but have their teen handle ongoing costs. Others have their teens pay for a percentage of the car’s purchase price. This means your teen either has to look at less expensive cars or sock away more for a more expensive one. Keep in mind that if your teen commits their own funds to the project, either paying for some or all of it, odds are that they’ll value the car more and get better hands-on financial experience.
7. Paying for college – If your child is college bound, make planning for it a family project. Some parents feel that it’s their responsibility to cover a child’s undergraduate or even graduate school expenses. Others feel that paying for college is entirely the child’s responsibility. If circumstances allow, we recommend a middle ground where the family and student share responsibility for the costs of higher education. Working together, parents and teens can evaluate possible colleges, compare costs and programs, and create a list of estimated costs. Teens can contribute by socking away savings, and by researching and applying for scholarships and grants. Teens who contribute toward their education financially often take it more seriously than those who do not.
8. Building a “Plan B” fund – A rainy day fund won’t sound very important to a teenager who believes their weather will always be sunny. But when they really stop to think about it, most teens can understand the value of having a “Plan B” to fall back on when things turn out differently than anticipated. Having emergency savings stashed way can help them feel smart, prepared, and confident, no matter what happens.
Teens are on the cusp of becoming independent. Do all you can to help them become wise financially, so they can live the kind of financially stress-free life you, yourself, are aiming for.
About Pamela Yellen:
About the Author: Pamela Yellen is a financial investigator and the author of two New York Times best-selling books, including her latest, “The Bank on Yourself Revolution: Fire Your Banker, Bypass Wall Street, and Take Control of Your Own Financial Future.” Pamela investigated more than 450 financial strategies seeking an alternative to the risk and volatility of stocks and other investments, which led her to a time-tested, predictable method of growing wealth now used by more than 500,000 Americans. For more information visit www.BankOnYourself.com.