In this article I’ll tell you about A Three Step Approach to Teenage Finances. As our children age they have a better understanding of money, how to process it and decisions on how to use the money. Although it would be better to teach our children at much younger ages about financial responsibility, sometimes we miss the boat.
It is never too late to start teaching your children about finances, even if that means starting with them when they are in their teenage years. Here are some ways to teach your teens how to start managing money.
Step 1: Be Honest
Talk to you children about how much money you make. In order to fix the problems we have we need to be able to break down this barrier of money secrecy. It does not good to say we can’t afford that, when there is not context behind the statement. Be honest and open about how much money you make, where it goes and how/if you save any.
Step 2: Sit them down and discuss
Sit down with your teens and as a group come up with a budget. Have them be in charge of finding all the bills for the previous month and putting them in an excel spread sheet. Once this is complete, as a group, discuss ways in which you can save money by decreasing the amount spent on recurring bills (link to Allen’s page); electric, water, food, or by removing certain expenses, going out to eat. This type of planning can open the door for savings (college), allowances, etc . . .
If you are paying for their car insurance start making them pay it. Give them an allowance (more than the insurance payment) and have them pay it on time and keep a budget so they can see where their money is going. Don’t forget to add any money they make to their budget, if they have a job.
Step 3: Teach Credit Safely
Teach your children in a safe environment the mistakes of credit. Come up with a debit system where they have a card (treat it like a credit card). Once they make a purchase they owe you that plus 10%. If they can’t pay it back right away that is not a problem just keep adding 10% every 2 weeks until it is paid off. This will get frustrating and will help your teen understand how credit cards work.
This could lead to even better conversation about credit and the real cost of getting a college degree, owning a car or buying a house. Anything that you could do to spark the conversation about money, how it is spent and the real value of credit is priceless.
I hope these ideas help you start the conversation with your teen. I also hope that by attempting these steps you teach them how to better manage their money. I would love to hear of other ways you are teaching your teens on ways to manage money. Let me know of discussions you have had with your children that you found very useful.