Understanding The Value Of Money.
One of the best ways for teens to understand the true value of money is to understand what goes into earning it – which means getting a job. But having the job is only the first step. Once your teen starts earning money regularly, it’s important that they learn how to handle that money well and respect how far a dollar really goes.
Handling earnings from a job
Teens often have more expenses than younger children, and your child may be coming to you for money more often. But with you holding the purse strings, your teen may have difficulty making independent financial decisions.
One solution? Encourage your teen to get a part-time job that will enable him or her to earn money for expenses. Here are some things you might want to discuss with your teen when he or she begins working:
- Agree on what your child’s pay should be used for. Now that your teen is working, will he or she need to help out with car insurance or clothing expenses, or do you want your teen to earmark a portion of each paycheck for college?
- Talk to your teen about taxes. Show your child how FICA taxes and regular income taxes can take a bite out of his or her take-home pay.
- Introduce your teen to the concept of paying yourself first. Encourage your teen to deposit a portion of every paycheck in a savings account before spending any of it.
- A teen who is too young to get a job outside the home can make extra cash by babysitting or doing odd jobs for you, neighbors, or relatives. This money can supplement any allowance you choose to hand out, enabling your young teen to get a taste of financial independence.
Developing a budget
Developing a written spending plan or budget can help your teen learn to be accountable for his or her finances. Your ultimate goal is to teach your teen how to achieve a balance between money coming in and money going out. To develop a spending plan, have your teen start by listing out all sources of regular income (e.g., an allowance or earnings from a part-time job). Next, have your teen brainstorm a list of regular expenses (don’t include anything you normally pay for). Finally, subtract your teen’s expenses from his or her income. If the result shows that your teen won’t have enough income to meet his or her expenses, you’ll need to help your teen come up with a plan for making up the shortfall.
Here are some ways you can help your teen learn about budgeting:
- Consider giving out a monthly, rather than weekly, allowance. Tell your teen that the money must last for the whole month, and encourage him or her to keep track of what’s been spent.
- Encourage your teen to think spending decisions through rather than buying items right away. Show your teen how comparing prices or waiting for an item to go on sale can save him or her money.
- Suggest ways your teen can earn more money or cut back on expenses (e.g., rent a DVD to watch with friends rather than go to the movies) to resolve a budget shortfall.
- Show your teen how to modify a budget by categorizing expenses as needs (expenses that are unavoidable) and wants (expenses that could be cut if necessary).
- Resist the temptation to bail your teen out. If your teen can depend on you to come up with extra cash, he or she will never learn to manage money wisely. But don’t be judgmental–your teen will inevitably make some spending mistakes along the way. Your child should know that he or she can always come to you for information, support, and advice.
Easy Ways To Encourage Money Responsibility
Your teens’ relationship with money starts at home – not only in how they see you handle your financial life, but also in the way the family talks about and interacts with money as a unit. Discussing the value of a dollar and the ways to be responsible with your money helps set your kids on the right track long term.
The following are good guidelines for helping your kids manage their money effectively.
1. Start Saving Early.
One of the tools we have used is starting a savings account for the kids’ college years when they were about 9 or 10. Even at $10 every two weeks, the savings added up to a noticeable balance by the time they were older teens.
2. Set Spending and Savings Patterns Early.
Our rule at home is that 10% of each child’s earnings is used for charitable contributions-a way to give back to the community or church. An additional 40% goes into a savings account that Mom or Dad have to sign for to withdraw funds.
This we call the “college fund” and is reserved for getting the child into college or some appropriate post secondary activity. The remaining 50% can be used at the child’s discretion, but we also set up an additional savings account for them to use for this play money. By setting some patterns while they are under your roof, kids can learn good spending and budgeting habits.
3. Consider a Matching Savings Fund.
Some parents I have talked with encourage savings by matching dollar for dollar what their children put into a college fund. This pattern allows them to see first hand their parents’ attitudes about money management.
4. Family Financial Councils.
About once a year, we take one of our weekly family council meetings to discuss family finances. We take Mom and Dad’s gross monthly income and convert it to Monopoly money and then go through the family budget with the children. This helps them see how Mom and Dad budget and how much things cost in the real world. Utility and transportation costs are usually the most shocking for them, and it helps them see the trade-offs that are inherent in any budgeting process.
5. Checking Accounts.
Helping an older teen establish a checking account can be the next step in teaching financial responsibility. Most banks and credit unions offer special plans for teens.
– via About.com Parenting
How have you taught your teen about money?