How to Teach Your Children Good Money Management
Most teens are not known for considering the consequences of over-spending. This generation of teenagers are heavily influenced by the "fantasy life" depicted on social media and streaming tv shows. They're easily convinced that their lives should be more like the ones they see online. So what do they do? They spend money as quickly as they can get their hands on it.
Here's five tips to help you protect your teen and help them make smart financial choices:
- Imitation is the best form of flattery. If that's true, the parents should start with leading by example. It's important that your teen witnesses you making good financial decisions. Even though they may not give you a pat on the back, there's a good chance they pick up those habits.
- Treat saving like paying a monthly bill. Paying monthly bills seems second-nature to most adults, but consistently saving a portion of your income is a much more complex lesson to learn, or teach. It's logical, however, that a teen who saves a little from each paycheck will grow up to understand and appreciate the power of this simple practice.
- Track your spending! It doesn't take a genius to grasp this concept, so your teen has no excuse. They must know where their money is going every month. There are even free apps that can help categorize and track their spending.
- Don't put all your eggs in one basket. Open an account for spending and an account for saving. Keeping all your money in the same place is not going to help you save. If your teen can access it, they’re going to want to spend it.
- Don't just buy stupid stuff to impress other people. A good rule of thumb is to use the 50/30/20 system. It lets you spend money on things you want, without letting your spending get out of hand. Basically, living within your means.
- 50% of your money to “Needs” like mortgage, car, utility, or insurance payments,
- 30% of your money to “Wants” like dinner, movies, vacations, or anything that isn’t necessary, but that costs money to make your life more enjoyable,
- and 20% of your money to “Savings”, which can include debt repayment, IRA contributions, or simply deposits into a savings account.
This system allows your teen to enjoy the fruits of their labor while living within their means.
It's been said that you can lead a horse to water but you can't make him drink it. So how do you get your teen to buy-in on this type of plan?
If your teen sees that you’re putting effort into helping them, they’ll likely take your suggestions more readily. Often, teens will reject doing something because they have no idea where to start and don’t want to be embarrassed by admitting it or trying and failing. Here are some lists of options you can prepare for your teen:
- A list of part-time jobs that are available for teens
- A list of budgeting or spend tracking apps
- A list of saving accounts (like starter investment accounts, mutual funds, or interest-earning accounts)
- A of banking options that don’t charge bank fees
- A list of potential financial goals (and a plan to help them get there!)
Working with your teen can help set them up with good financial habits that they can carry into their future as adults, and one day they may even thank you for it.
