Introducing Money Management Skills to Teens (Part 2)

Where to start …  
  1. Consider their age, previous knowledge and habits, and desires for the future
– Obviously, the age of your teen matters and so does their previous experience with dealing with money. Ask them to define money management and cash flow to find out just what they think that entails. Hopefully, they will include the idea that this involves money coming in AND how that money will need to go out to pay for the wants and needs in a person’s life. And if they don’t mention it, make sure you remind them the goal is for more money to come in than out! – Since money is how we obtain both the necessities and non-necessities in life, allow your teen(s) to share how important money is to their future. Ask about their dreams and goals related to the standard of living they desire and where they see themselves 5 years from now. Would they like to be living on their own? Will they be in some post-secondary education program? Do they desire an urban, suburban or rural living experience and do they have awareness of housing costs associated with those preferences?  
  1. Inquire as to how they do or will get money for their aspirations
               – Where has your teen obtained their own money in the past? Do they receive an allowance, earn cash form extra chores in your home, collect cash gifts on their birthday or holidays, or perhaps have existing employment experience? If they have no current money stream, brainstorm ways of earning some cash and ask them to follow through on one or two ideas. – Consider sharing where your money comes from (not necessarily the dollar amounts). This can be in general terms like paycheck, investments, alimony, government subsidies, etc. This honesty helps our youth have a more well-rounded knowledge of the adult world.  
  1. Discuss what to do with money once obtained
               – Examine what your teen has been in the habit of doing with their money. Some of us have children who spend immediately. Others tend to save their cash. – Do they have a bank account with the ability to pay by check or debit card or do they prefer to pay by cash when spending? Do they show interest in saving or investing money for future needs? – Age limits vary by state for teens to open their own bank accounts or obtain a credit card. Accordingly, you may need to or want to be a joint account holder when they open a checking account and/or money market account at the local bank. They will need to understand how to minimize fees associated with minimum balances, obtain and write checks and use a debit card without incurring overdraft or avoidable ATM fees. These are all skills they will need as adults and we can’t assume are understood without practice. An interesting question is at what point should a parent open a joint credit card with their teen, or should they just wait until their teen is old enough to open their own credit card account? If a parent feels their teen may not be able to manage a credit card responsibly and could incur needless interest charges and harm the parents credit rating, then will the teen do any better if you ignore this challenge until they are on their own.  Opening a joint credit card and educating your teen on credit limits, the need to pay the bill monthly to avoid interest charges, and using the card appropriately can emphasize living with your means concepts that are valuable later in life. – Here are some thoughts for opening an account …  https://learninginfoforeveryday.com/1228/teens-need-a-bank-account/  
  1. Developing an understanding of personal budgeting
– Have you helped your teen develop an awareness of personal (and/or family) budgeting? Are they familiar with typical living expenses – housing, utilities, transportation, insurance, food, clothing, medical, entertainment and saving for future expenses and retirement? Reviewing the magnitude of each of these items can be a real eye opener for your teen. – Have you considered sharing your personal family budgeting process and practices? On the one hand, some parents believe sharing budget constraints with their children can cause undue stress or give their children a sense of entitlement about how the family spends available funds. On the other hand, giving children visibility of your own budgeting decisions can create better judgment when confronted with similar decisions as adults. Although divulging this information with your child may draw mixed emotions, it can be a positive exercise for all involved and allow for self-reflection while teaching. – Make a list of monthly expenses, they as a teen incur and should be responsible for paying. (Yeah, I know … this isn’t going to be a popular discussion. But at some point, the transition to paying their own way needs to happen, so why not get them to start thinking about it?)  For example, when they get a driver’s license, will your teen need to bear expenses associated with driving? Do they pay for the gas they consume or share the insurance expense associated with adding them to your policy? Do they desire to own their own vehicle, and do they have an understanding of funding the purchase price including insurance and maintenance costs associated with different options? Should they pay for their own cell phone, electronics or video games they desire? Just providing these things to your teen can slow their understanding and acceptance of budgeting and matching expenditures to income. – Review with them monthly expenses they can expect as an adult living on their own. As mentioned above, this can include sharing some of your family’s current expenses and budgeting process. A hugely important issue is evaluating the costs associated with post-secondary education. Financing these educational expenses and understanding the future loan payments created as a result are crucial to setting realistic expectations about what options are available.            Well, that is it for now. Look for Part 3 on Setting up a Budget, coming next week.
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