How we handle money plays a critical role in determining our quality of life, but surprisingly, fewer than 20 states require some form of personal finance to be taught in school.
What do teenagers think about this gap in their education?
80% of them feel the best time to learn about money is before they graduate from high school, and 86% look to their parents for information on how to manage money.**
So while it may initially feel uncomfortable tackling such a serious subject with your teen, he will be happy you did, and teaching him to become financially literate will pay off as he carries these skills into adulthood.
Give Hands-On Experience
From a young age, you can show your child good spending habits in action when you’re at the grocery store or doing other shopping by talking about how you make spending decisions (comparing prices between brands and retailers, reviewing product quality, taking advantage of sales).
But nothing beats experience, so if you can, set your teen up with an allowance with a recurring amount and frequency, and let him know what you expect him to pay for (movies, snacks, iTunes downloads, etc.). Simply discussing the allowance amount, what he needs to do to earn it and what it has to cover is a money conversation that he will be very interested in. (It’s amazing how much a person’s attitude toward spending can change once it’s his money he has to use.) Not only does an allowance reinforce differentiating between wants and needs, but it’s also a great way for your teen to learn to use and balance a budget.
Plan and Track
Financial experts agree - you should never spend more than you make, and you should be in control of your money, not the other way around. There is simply no better way to stay on top of your finances than by using a budget. The visual process of tracking money coming in and going out is both easier and more reliable than juggling numbers in your head. Keeping an ongoing record gives good insight into spending habits to keep up, as well as those that need to be revised.
Establish a basic budget with your teen, including all money coming from an allowance, gift money received, summer or part-time job earnings, etc. List the expenses he is responsible for as well as his income. Plan ahead for upcoming expenses and set aside a portion for savings. Talk about any bigger ticket items he wants to save for, evaluate other expenses, and work out how to reach those goals. Getting used to budgeting and successfully reaching financial goals will give your teen satisfaction and confidence, and encourage him to continue practicing responsible financial habits for the rest of his life.
Download and print a Teen Budget Worksheet from Family Education HERE.
Open Up
The best way to familiarize your teen with the responsibilities of running a household is to talk about how you manage family expenses. Sit down with him and show him the family budget. What are your major obligations every month, and what will he need to cover when he’s out on his own? What is your process when saving for a new appliance or a family vacation? (What other wants are you limiting in order to put money aside for those goals?) How do taxes impact your income?
Also, share examples of your own financial successes or failures, explaining the consequences of financial decisions you’ve made, and how they affected you. Passing along real stories can make a big impact and are easier to remember because they actually happened to someone he knows.
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Helping your teen become financially literate is an ongoing process, involving frequent discussions as well as letting him get experience with money so that he can make mistakes and learn lessons – before he strikes out on his own. Starting and maintaining an open dialogue about money habits and attitudes with him now will help him see smart money management as a positive, rewarding practice that will lead him to a healthy financial future.
**2012 Junior Achievement USA/Allstate Foundation “Teens and Personal Finance” survey