While there are many strategies for teaching your teens about money, one of the most efficient, and hands on, opportunities is utilizing an allowance. Here are 5 tips on how to use an allowance effectively:
1. Require Your Teen to Pay for Everyday Items
Rather than giving your teens an allowance to cover only fun expenses, consider having them manage a weekly budget including the cost of goods and services you are already paying for. Add up the amount you are paying for school lunches, after school activities, clothes, and any other weekly expenses your teen encounters. Not only will your teen begin to develop budgeting skills, but they will also begin to value money and understand the costs associated with different items.
2. Reward Your Teen for Good Spending Habits
Now that your teen is responsible for everyday items, encourage them to use money saving techniques. For instance, encourage your teen to pack their lunch rather than using their lunch money. This is one habit that throughout life can save an individual quite a bit of money. As an incentive, allow your teen to keep the lunch money portion of their allowance to spend on other items.
3. Utilize “Interest” To Make Your Teen’s Money Grow
As your teen learns to manage their expenses, encourage them to save a portion of their allowance for a future goal. As an incentive, set the funds aside in the “bank of mom and dad” and allocate interest on a monthly basis showing your teen how their money can grow when they save rather than spend.
4. Tax Your Teen’s Allowance
Once your teen starts working, they will need to pay taxes. By taxing your teen’s allowance, you are not only introducing them to the concept of tax, but you are also showing your teen why you cannot plan to spend 100% of your gross income. Consider setting the “taxes” your teen pays aside in an account for their college, retirement, or the running of the household. After all, taxes do go to pay towards running our country, why not your household?
5. Keep Open Communication
It is extremely important to continue to monitor your teens spending, encourage them to make good spending and saving decisions, and have a clear line of what they are responsible for paying for and what you intend to continue to pay for.
A great tool for giving your teens an allowance is the SpendSmart™ Prepaid MasterCard®. Each week, load up the card with your teens allowance and track their spending with ease.
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The SpendSmart Prepaid MasterCard is issued by Republic Bank, member FDIC, pursuant to license by MasterCard International. See theCardholder Agreement for Terms & Conditions including fee schedule details. The SpendSmart Prepaid MasterCard card cannot be used at merchants deemed inappropriate for teens, such as liquor stores, online gambling, etc.