As parents, grandparents, mentors, and educators, I expect that you are well on your way to helping your teen(s) learn how to manage their finances. Congrats!
Hopefully the previous five blogs during Finance February and March Money Madness have helped. Don’t hesitate to consult L.I.F.E.-Independence Readiness for additional content on this subject or reach out to me to discuss.
To conclude this series, I have listed action items and ideas for further learning. Some points have been mentioned previously but are worthy of repeating here. (Note that several of these ideas can be implemented much earlier than the teenage years.)
- Share real life success and failure stories, of self and others, related to financial decisions and money management. This keeps it real for teens and reduces the feeling of inadequacy as they launch into new, adult behaviors.
- Assist in opening a checking and savings account for all children. Encourage and monitor usage.
- Consider providing an allowance (in exchange for chores, of course) so children can start to learn money management … especially if your child is too young to get a job outside the home. It doesn’t have to be a large amount of money, but enough so saving and spending can occur.
- Allow your teen to start using their own money to make purchases (e.g., gifts for friends & family, non-essential clothing, entertainment, etc.).
- Create a monthly budget together (household and/or teen budget).
- Have teen participate in making a grocery store list and go to the store to make purchases within the budgetary allotment. Discuss supplies already in the home vs. what needs bought. Let them plan the meals they are shopping for & even cook it. Encourage price comparisons of labels (brand names vs generic or store label) and allow your teen to make decisions accordingly.
- Have teen shop car insurance (& even homeowners’ insurance)—this can be theoretical but may result in you changing companies for a better deal … a bonus. Use a minimum of 3 different companies for comparison and create a list of pertinent information to be obtained during the search (maybe sit with the teen during the first phone call or online inquiry).
- Have teen help you pay your monthly bills.
- Practice writing a check properly.
- Let your teens in on the process of making large expenditures and decisions. Here are a few possible scenarios:
- The family needs a new car. Discuss the pros and cons of buying new vs. used. Look at desired models, size needed, features desired, budget, down payment available, financing term options, and possible trade in value of current vehicle. Look at vehicles online to compare. Then ask for your teen’s decision vote. (Note I said “vote”—indicating you want to hear their thoughts but reserve the right to make the final decision.) Teens can give thoughtful insight and may help more than you think. Now take them car shopping with you.
- The home needs a large new appliance, equipment, or piece of furniture (washer, dryer, vacuum, lawnmower, water heater, sofa, dresser, etc.). Basically, have the teen apply the same thought processes as above, just include removal of old things, assembly if required, and reviews.
- Looking for new living accommodations (apartment, townhouse, home). This is a big learning curve but introducing any parts of the process can be helpful in the future.
- Give cash (doesn’t have to be a large amount) that must be put in savings account in place of or in addition to a birthday or holiday gift. Ask others to do the same. After all, how many toys does a two-year old need? But a large bank account can really come in handy when this baby turns 16, 18, or 21!
- Allow teen to investigate refinancing a home mortgage with you. Point out current monthly payment, the costs of closing/refinancing amortized over time (& breakeven date), and overall savings for life of the mortgage.
- Help fund and set-up a Roth IRA
- This activity allows for 50 years of monetary growth and could turn $1,000 into $100,000+
- This Custodial IRA will transfer to the individual when he/she turns 21 years old
- Remind your teen that withdrawals before age 59 ½ have significant tax penalties and this account is intended to provide retirement income
- Note that a child must have earned income to participate (job, babysitting, lawn service, etc) – must be a “normal/appropriate” wage and allowance does not count
- Contribution must be the lesser of $6000 or 100% of wages earned per year (Ex: child makes $1000, can only contribute that much)
- Consult professional for more help and details
FEEL FREE TO COMMENT AND SHARE OTHER IDEAS YOU HAVE SO ALL READERS MAY BENEFIT. And thank you for participating in Finance February and March Money Madness!