TALKING FINANCES WITH YOUR TEENA Parent’s Guide to Teaching Financial Literacy and Responsibility
The coolest clothes. The latest gadgets. The concert they’re dying to attend with friendsLet’s face it: teens want stuff. And the social media blitz of all the things they supposedly “need” doesn’t help…especially when parents foot the bill. We want our kids to be happy and, of course, we want to do the best we can to provide for them. But if we just keep giving, what our message to them? Are we really preparing them for the future when that day comes when the Bank of Mom and Dad is “closed for business”?
Giving our teens everything they want isn’t doing them any favors. In fact, it’s doing them a disservice because it’s hard to understand the value of a dollar when those dollars are in endless supply. So, if you give your teenager an allowance, that might introduce budgeting and saving. If your teenager has a job, then, yes, he or she will grasp how easily one’s hard-earned salary can disappear with lack of discipline. Nevertheless, there’s still much more to learn about handling one’s finances.
According to a recent survey by the Program for International Student Assessment (PISA), 96% of students said they learned about money from their parents. Yet, in a poll conducted by the National Financial Educators Council, 57% of respondents stated that their parents never taught them about money. It’s safe to assume that the ones who learned about money from their parents were better off (as long as their parents were teaching ― and just as importantly, role-modeling ― a responsible approach to finances).
It’s important to remember that merely having a conversation or two about finances is insufficient. So, to help you along on this journey, here are strategies you can employ to help your teen establish positive money habits that stick:
Tips for Teaching Money Skills to Teens
1. HAVE THE CONVERSATIONS
Distinguish between Need vs. Want
For teens today, the terms are sometimes interchangeable. How many times have you heard “I need a new phone”? The newest model comes out and your child’s phone, while not the latest iteration, remains fully functional! In our consumer-driven culture, millions of dollars are spent convincing us of all the things we “need.” That can be a confusing message for adults and teens alike. Help your teen understand that food, gas, medicine, shelter, and insurance are examples of “needs,” whereas video games, tech gadgets, and a cool pair of designer jeans or running shoes are “wants.” Consider introducing the 50/30/20 rule – 50% needs/30% wants/20% savings – as a starting framework. Be sure to model good money behavior. Teens learn a lot by watching. If they see you avoiding impulse buys and instead planning before purchasing, they’re more likely to do the same. Embody the lessons you’re teaching; your actions speak louder than your words.
Normalize Money Talks
Make money discussions a regular, judgement-free part of family life. Bring them to the table. Keep your kids informed about the current economic climate and how it impacts everything from fuel pump to grocery aisle. Explain the significance of one’s credit score and how that affects the basics that will matter to them very soon, such as renting an apartment or buying a car. Walk them through the process of how loans work and what accruing interest/interest rates mean in terms of paying them off. Clarify that credit cards are not “free money” and warn them not only of the danger of sinking into credit card debt, but also how difficult it is to rescue yourself once you’re foundering. You’re not expected to know everything; this becomes a “teachable moment” for both of you once you invite your young’un to participate in the research. The aim here is to send the message that financial literacy is an ongoing learning process, even for adults. Furthermore, when teens feel comfortable talking about money at home, they’re more likely to seek advice and make informed choices later in life.
Be Open About Everyday Finances
Whenever appropriate, include your teen in financial decisions that affect the family. This could be going over the monthly household budget, discussing why you choose one cell phone plan over another, or showing them how you pay bills online. Seeing adults make budget decisions and trade-offs firsthand helps demystify the concept of managing finances. It conveys that money management is a normal―and essential―aspect of life. The earlier they’re involved, the sooner they’ll start learning the language of finances and the how-to’s of managing them wisely.
2. PUT INTO PRACTICE
Encourage Saving Habits
Help your teen set a savings goal (like a new phone or first car) and develop a plan to reach it. The classic method of throwing money into a clear jar works well to track visual progress. To motivate them, you could even offer a “parent match”; for every dollar they save, you contribute a dollar too, thus introducing them to a concept like a company 401K where employers match employee contributions with an established percentage.
Let Them Earn & Learn
There’s no better way for teens to appreciate the value of a dollar than having them earn their own money. Paid chores at home are a good place to start. Then, if they get a summer job, be sure to review their first paychecks so you can explain deductions for taxes and benefits (if applicable) so they understand gross vs. net pay.
Find Ways to Make it Fun and Rewarding
Resourcefulness and creativity can lead to countless ways that make learning financial literacy an enjoyable process. Here are a few ideas:
•The Grocery Challenge: Have your teens do the family’s food shopping with a given budget that they cannot exceed, then watch how quickly they start noticing prices at the supermarket. Maybe even let them clip coupons to see how much of a difference that can make.
•The Family Save-Up Challenge: Set a motivational goal that can be anything from movie night at IPIC to a weekend trip to Universal Studios. Emphasize to your teens that they might have to make some sacrifices to meet this goal and show them that delayed gratification can be equally rewarding as instant gratification.
•Board Games
Granted, it’s a little “old school,” but traditional board games like Monopoly, Payday, and The Game of Life are still relevant, a great way to learn about finance, and bonus: a nice, screen-free way to have fun as a family.
•Online Games
Of course, today’s teens are inclined to eschew board games, or refuse to play in the first place. Fortunately, they can opt to play (and learn!) on their phones or laptops with such financial literacy games as financialfootball.com, stockmarketgame.org, and others.
3. HELP SET THEM UP FOR SUCCESS
Banking Options for Teens
One of the best ways for teens to learn money management is by giving them hands-on experience with real bank accounts, under your supervision. They get the freedom to make purchases (in-store and online), manage their own budgets, yet all the while you retain your ability to monitor their actions.
PREPAID CARD
For younger teens, a joint checking account or a supervised debit card is usually the safest bet. Many parents start with a prepaid debit card app such as Greenlight or Current. Each comes with its own set of pros and cons which we’ve highlighted below:
Greenlight greenlight.com
Pros: Parental controls; real-time transaction notifications; savings and investment tools
Cons: Monthly plan fees can be expensive; additional features require an upgrade to one of the higher-tier plans.
Current current.com
Pros: No monthly fees; competitive savings rates; no overdraft fees
Cons: No physical branches; no traditional checking account; savings rate restrictions2. SECURED CARD
Secured cards have lower credit limits thereby mitigating the risk of overspending. Secured cards help teens practice such positive habits as budgeting and making payments on time. Among the options to consider are Step step.com and Discover it® discover.com Both platforms feature no annual fees and offer cash back rewards.
3. CREDIT UNION
Credit Unions (not-for-profit, cooperative member-owned financial institutions that prioritize serving its members’ needs) are another means to give kids a financial head-start. It’s a useful tool to begin teaching students about ways to manage their money, how to save, and how to better prepare for a financial future. The benefits extend to parents too. Take, for example, Florida Credit Union’s FCU FAM® Online Banking Tool flcu.org which lets you quickly and conveniently transfer money into your child’s account, manage his or her allowance, financially reward good grades, loan money with interest and a payment plan…all with the capability of setting parental controls.
4. TEEN CHECKING ACCOUNT
Once teens have matured to an age where they feel they are responsible enough to “go it alone,” there are checking accounts offered by major banks that can be theirs without an adult co-owner.
For instance:
Bank of America Advantage SafeBalance Banking® info.bankofamerica.com (teen can be sole owner by age 16)
Wells Fargo Clear Access Banking wellsfargo.com (for teens 17 and older)
Citizens Student Checking citizensbank.com (teens age 18 and above can open an account online)
Chase chase.com offers a program where your account grows with you. More specifically, a Chase High School Checking account converts to a Chase Total Checking® account upon your child’s 19th birthday.
Remember, your kids count on you to help them maneuver through the intricate world of finance. Teaching financial literacy prepares them for eventual self-reliance. By arming them with information, guiding and supporting them, and readying them with real-world financial experience, you give your teens the gift of knowledge and confidence. It’s a gift that no one―no matter how financially savvy―can put a price on.
