Sue Scheff Blog

Sue Scheff: Teens and Financial Responsibility

by Sue Scheff on May 19, 2010

Especially as our children watch many parents struggle with finances, possible job loss, and worse yet, some losing their homes - it is critical we teach our teens about budgeting and money management.  Here is an excellent timely  article with parenting tips everyone will benefit from.

Source: Connect with Kids

Teaching Teens About Money

Before, like, when I didn’t have a job, when I wanted something, I was like, ‘oh, okay – swipe the credit card and, like, Mom and Dad will pay for it.’ But once it’s my own money and I’m spending it, I look at a sweater and I’m like, ‘wow, that’s really way too expensive. I have to work like eight hours for this.’”

– Vanessa, 17

In today’s complex, difficult economy, experts suggest that parents make financial literacy an educational priority.

A new survey by ING Direct advises parents to begin discussing everything from credit scores to savings with their teens. And that can mean talking with teens about whether to spend or save hard-earned money from their part-time or summer jobs.

17-year-old Vanessa works part time at a tanning salon. She says her paycheck belongs to her, and not her parents.

“They shouldn’t be too involved,” says Vanessa, “because it’s my money that I’m spending. Like, I’m working for it.”

“There are times that she’ll come home with a new purse,” says Vanessa’s mom Dianna, “or some more shoes that she doesn’t need – and we kind of get upset.”

Should parents decide how kids spend their money?

“It’s a good thing for parents to say, ‘you’ve got money coming in – these are the things that I would do if I were in your shoes,’” says Todd Mark with the Consumer Credit Counseling Service. “Not necessarily force them to, but strongly encourage them to.”

That encouragement can pay off.

“I like saving,” Vanessa says. “It makes me feel good knowing that I have money in my savings account. When I talk to some people they are, like, ‘oh, I only have, like, $50!’ I’m like, ‘wow! I have a lot more than that!’ So it just feels good because, like, in the future, I’ll be set up a little better than most people.”

And experts say that if you can afford it, encourage kids to save by matching those funds.

“Say, ‘you are going to put 10 percent aside, we’ll match you dollar for dollar,’ ” advices Mark.

Vanessa says she now saves most of her paycheck—because that’s what her mom taught her to do.

“Before, like, when I didn’t have a job,” says Vanessa, “when I wanted something, I was like, ‘oh, okay – swipe the credit card and, like, Mom and Dad will pay for it.’ But once it’s my own money and I’m spending it, I look at a sweater and I’m like, ‘wow, that’s really way too expensive. I have to work like eight hours for this.’”

What Parents Need To Know

Financial literacy is the ability to understand finance and money matters: an individual’s ability to make informed and effective decisions about the use and management of money.

A study released by ING Direct, however, reports that parents don’t know what impacts credit scores. To raise a credit score, consumers must maintain good credit habits, pay bills on time, keep credit card debt very low, let accounts age and apply for credit sparingly.

Parents can teach financial literacy to their children – about credit scores, checking accounts, and savings strategies — by introducing concepts of needs versus wants and saving early on. This may correct financial missteps before they happen and prepare young individuals for the money management decisions they may face while approaching adulthood.

Do not wait until your child gets a job to start lessons about being a smart consumer. Parents can talk to kids about comparison-shopping, delayed gratification, and prioritizing purchases even before elementary school. The FDIC offers these “money tips” for parents to model smart financial behavior and promote financial literacy:

• Play “show and tell” while you manage your own money. If you expect your kids to become responsible with their money — and yours — practice what you preach. Serve as a good example of what it means to save, spend wisely and share with others. So, take your child along on shopping trips and to the bank. Around the house, let your child help with simple tasks associated with preparing deposits or investments, or balancing the checkbook. As you pay your bills, especially the ones for your credit cards, explain how debts must be repaid on time or you can face additional fees and have trouble getting a good loan in the future.
• Help your child start a savings or investment account. Young kids will enjoy saving money in piggy banks, but at around age eight, think about helping them open a small savings account. That way they also begin learning what banking is all about. Many parents reward their children for sticking to a savings plan by matching or adding to what the child contributes. As children get older, discuss the pros and cons of owning investments, such as stocks, bonds and mutual funds. Investments can produce higher returns than bank deposits over the long term, but remember that investments can lose money and they are not insured by the FDIC.
• Give an allowance. If used as a teaching tool and not a giveaway, an allowance can be one of the best ways to teach kids, even as young as five or six, about money management. It also allows children to experiment with money management and learn from their mistakes without losing too much in the process.
• Encourage older children to get work experience. Summer or part-time jobs can teach young people good business skills and how to be responsible. They also may enjoy earning and saving money. Consider asking your teen to put part of his or her paycheck aside for retirement. Money that teens put into a Roth IRA between the ages of 16 and 21 can experience dramatic gains by retirement.

Resources

• ING Survey on Financial Literacy
• Teaching Children the Financial Facts of LifeMoney Smart for Young Adults — A Financial Education Program
• Money Smart for Young Adults — A Financial Education Program

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