This last segment of our mini series, Teaching Your Kids About Money, is geared to the parents of adolescents. This is when it gets real, folks!
If you have children in this age-range, and have only just started to develop your child's money skills, don't worry when you see we've been helping parents with ideas going all the way back to toddler age. You haven't missed the boat!
You can easily catch-up by checking out all those ideas, especially all the conversations about why you make the money choices you make, what is involved, and after you make sure your kids are managing the math part well enough, go ahead and dive into the really real-life Money Lessons we've got for your teens.The following recommendations are geared for you to align with the level of maturity your child has reached at a certain time. Even very limited exposure to these activities will bear much fruit in teaching kids about managing their money.
Comparing Numbers with Real Earnings, Real Shopping and Real Expenses
If you've spent any effort in the past, showing your children a little bit of what the real costs are in their lives (link to Part 3), they’ll enter their teens with a considerable amount of knowledge about the costs of things they want. Hopefully, they’ve also learned about several of the family expenses in recent years, so that they will have a realistic start to this season of their financial literacy.
This is the time to get them much more involved in the family’s real expenses, and to have your child help with managing the shopping and bill-paying that each family needs to complete. Even just going along with you to shop, to go to a bank, and/or assisting with online bill-paying and online shopping, will provide the comparative lessons needed.
As this is also likely to be the time when your child starts their own part-time job to earn their own income. Take the time to compare these two features with your child; have them notice the real-life costs a family incurs, compared to their income. This allows them to recognize the value of their money, compared to the value of theirs and your expenses. That’s a necessary reality check that will better inform their choices, as they later prepare to be independent.
Some parents also choose to provide a limited credit card for their teen, in order to have a running record of expenses, and a way to allow the child to try out their money-awareness and money-managing wings (after some great lessons about money from you). Careful attention to the type of card, and the parameters you set for your child, will result in a powerful learning experience.
Help Kids Acquire Great Money Habits
You've already included your child in some of your banking and money-decision-making activities in the past, as was appropriate to their age. Now you've reached the season of your child's life, where these next lessons will form them with the skills and habits that give them the ability to succeed on their own.
To get the biggest bang for your buck, it would be ideal to have your child use their own money for some of these activities. As the parent, you can best gauge how much or how little of their own money should be involved; this depends on the child’s age, income and other factors that strongly influence what is fair and appropriate.
Whichever level of contribution you choose, remember that the goal is to create a habit. So even if it's going through the motions with only your money, not your child’s, it's the activity that creates the habit in your child.
At this point, you can reveal more about your family's / your home's expenses (taxes, insurance, food, retirement plans, clothing, car loans, etc), and the manner in which you undertake those transactions. Start small, but include your child in every element of even just one feature, if that’s all you start with.
For example, let’s say you start by introducing your child to paying utilities. Whether you select one or more, involve your child in the process as much as possible;
- When the bill arrives, go over the way the statement is produced, and check the information in it.
- Explain, and if possible, show your child how you deal with the regular, on-time payment of that bill. If you have accounting software, personal assistant, or some extra step in the process, teach your child that process as well as the simple banking methods available to you.
- Gradually expand the items that your child is involved with. An understanding of the different ways that you handle your various expenses will result in the most comprehensive learning.
This is also when you can reveal, in a limited way if necessary, your savings, your investments, and your retirement plans. And in the same way as above, show your child how these processes work. You can start by picking one of these, and letting your child complete the transactions with you, or for you, once you feel that the child is ready.
In both these activities, the goal is to have your child involved on a regular and consistent basis, in as many of the money management habits that are required in ordinary life. You want it to be habit-forming. Discuss the crucial nature of due dates, and later, credit ratings and scores.
The key is to have the child consistently and regularly manage their money, and to examine and reflect, on a regular and frequent basis, their money-related decisions. Most banks have online features that allow for greater ease in completing these tasks.
But it's not necessary to help them acquire the habits. Set aside a time when you all can do your own money management tasks together, to help get things started.
Teach Kids How To Budget
Whether it's with your child's own income, or yours, at some point in the later teens would be the right time to teach them about real-life budgeting. There are several models around, and as your child approaches adulthood these budgeting tools can prepare your teen to transition successfully to being an independent adult.
If your child is earning income independently of you, the opportunity is available to set up a structure to help them plan to pay some of their own expenses, to deposit into savings, and possibly even try investments (stay tuned for more on that in another article!).
Teach your child to practice creating their own short and long term goals (saving for a car, paying their own expenses, etc). Their practice of maintaining, even changing, their plans is another important component of developing good habits. This process can be done digitally, or with a cash envelope budgeting system, or a combination of both.
If your child is going off to college, or living on their own with your support, it is also an excellent time to lay down some budget parameters for them. If you’ve exposed them to good money habits, this won't be a painful transition, as this won't be new to them.
The Power of Compound Interest
It can be easier for teens to develop a savings habit if there is a fairly quick small reward for the sacrifice of delayed gratification (of spending). Explaining compound interest is paramount, because their youth is what gives it all its power. The sooner they start to save, the more benefits they’ll reap later in life.
Once your child has tasted the fruits of a little interest earned, they may be much more willing to undertake the savings habit with loftier goals to grow their money. There are even tools for apprentice investors who are minors. Parents will want to get some tax information first, but there are several activities you can do with your child, to introduce them to investing.
Once you've explained how investments and markets work, explain the concept of risk and reward to your mature teen. You can then share your investment choices, and the reasons for them.
While there are many more activities you can find to help your child be financially literate, you will also want your child to have good tools in their backpack for when things go sideways. Some parents may fear sharing the reality of financial losses, job losses, and other potentially-frightening financial life events.
But if delivered with care, and while sharing your plan to get through it, you will also teach your child how to cope with the unavoidable hiccups and obstacles they will also likely encounter some day.
We’re Here to Help
Whichever tools you use, remember that good habits make for greater success in life, and that includes solid ideas on what to do if real-life plans go awry. We’re here to assist you in your financial plans, and the growing financial goals of your children, whatever their age. Talk to us today.