Teaching Your Teen About Money

September 18, 2013

Your teen is becoming more independent, but still needs plenty of advice from you. With more money to spend and more opportunities to spend it, your teen can easily get into financial trouble. So, before money burns a hole in your child's pocket, teach him or her a few financial lessons. With your help, your teen could soon develop the self-confidence and skills he or she needs to successfully manage money in the real world.

Lesson 1: Handling earnings from a job

Teens often have more expenses that younger children, and your child may be coming to your for money more often. Encourage your teen to get a part-time job that will enable them to earn money for expenses. A teen who is too young to get a job outside the home can make extra cash by babysitting or doing odd jobs for you. Here are some things you might want to discuss when they start working:

  • Agree on what your child's pay should be used for

  • Talk to your teen about taxes

  • Introduce your teen to the concept of paying yourself first. Encourage them to deposit a portion of every paycheck in a savings account before spending any of it.

Lesson 2: Developing a budget

Your goal is to teach your teen how to achieve a balance between money coming in and money going out. Start by listing out all sources of regular income and then brainstorming a list of regular expenses. Finally subtract the expenses from the income. If the result shows they won't have enough income to meet their expenses, you will need to help them come up with a plan for making up the shortfall. Here are some ways to help your teen learn about budgeting:

  • Consider giving out a monthly, rather than weekly allowance

  • Encourage your teen to think spending decisions through rather than buying items right away

  • Suggest ways your teen can earn more money or cut back on expenses

  • Show your teen how to modify a budget by categorizing expenses as needs

  • Resist the temptation to bail your teen out

Lesson 3: Saving for the future

Here are some ways to encourage your teen to save for the future:

  • Have your teen put savings goals in writing to make them more concrete

  • Encourage them to set goals that are based on their values

  • Motivate them by offering to match what they save towards the long-term goal

  • Praise them for showing responsibility when they reach the goal

  • Open up a savings account

Lesson 4: Using credit wisely

Discuss the following things with your teen before he or she uses a credit card

  • Set limits on what the card can be used for

  • Review the credit card agreement and make sure your child understands how much interest will accrue on the unpaid balance

  • Agree on how the bill will be paid and what will happen if your child can't pay the bill

  • Make sure your child understands how long it will take to pay it off if they only pay the minimum balance.

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