Instilling Financial Responsibility in Your Teen

The 2001 Parents Magazine's Youth and Money Survey indicated that American parents miss the mark as financial educators for their kids, because they underestimate the role they can play in teaching their children about money management.

Financial management involves five major concepts:

• Earning
• Spending
• Saving
• Borrowing
• Sharing

Parents are a teenager's primary source of information when it comes to managing finances. They observe family values and attitudes about money, they learn the importance of saving, and they learn to value what they have.

Research suggests that teens are more knowledgeable about the use of money when they are given a variety of experiences including the opportunity to both save and spend. Teens also benefit from watching their parents handle family income wisely. As role models, parents can instill financial responsibility and encourage their teens to learn basic money management techniques.

Provide learning experiences.

Children learn more through observation than parents realize. Parents can enhance this learning process by involving their teens in financial decisions. Let them be aware of the decisions that are made and why they are made. For example, let your teen be involved in the decision-making process of purchase of a car for the family. When your teen sees you developing a budget, comparing car options and expenses, and making a final decision on what the family is able to afford, they will better understand what it means to make responsible financial decisions.

Create environment for discussion.

As parents, you must create an open environment in which you can discuss financial matters such as family budget, allowances, expenses and saving for the future with your teens. When parents include their teens in discussions of family financial problems, they are quite often surprised at how supportive and helpful teens can be during difficult periods. Honesty is always best, but also be careful not to cause your teen undeserved stress about a problem he can't control.

Instill the value of saving and planning for future.

If parents are successful in helping teens understand the difference between wants and needs, they can easily instill the value of saving and planning for the future. Give your teen options when the receive money for their birthday or holidays. For instance, they have to put half of the money in their savings account, but they can spend the rest on whatever they want.

Teens should understand the cost of attending college. If your teen wants to attend college, sit down with them and look at the cost of tuition, living expenses, and supplies. Explain the options they have, and you have, for paying for their college education. Describe the importance of their college education and how it will impact their earning potential.

Show your teen that money isn't everything.

Teens should be taught that it is important to contribute to their family, or to society, for reasons other than money. They shouldn't help around the house just to earn their allowance, and they shouldn't agree to baby-sit just because they know they'll be paid. Parents should teach their teens the importance of contributing to society in a positive way, and teach them that it is not always about money. Teens can develop a sense of pride and self-worth when they help others, whether they help around the house or volunteer in the community.

Look at money issues from your teen's point of view.

If you are worried that your teen is spending more money than she should, instead of jumping to conclusion, try to think about it from her point of view. Determine if she is being influenced by peer pressure. It's best to guide your teen rather than direct and dictate. You can help your teen identify financial goals and priorities, create a budget and track expenses.

Allow your teen to make mistakes and learn.

Teens must be allowed to learn from their mistakes and their successes. For example, there is a lot a teen can learn by having a credit card:

• the cost of interest rates and fees associated with a credit card,
• the need to pay a credit card bill,
• purchase limits, and
• the consequences of buying now and paying later.

Parents should make sure their teen's credit card has a low limit, and parents should have access to the account just in case their teen does not use the card appropriately.

Teens should be encouraged to compare alternatives, make decisions, and take responsibility for them. However, parents should also explain the consequences of violating their spending limits. Teens must realize that saving is a way to get what they want or need in the long run. Saving in case of emergencies also teaches them good planning skills. Express the importance of being prepared for anything. For example, their car may get a flat tire, and they will want to be able to fix it right away so that they aren't stuck without a car. Your teen may assume that you would handle this kind of dilemma for them, but making them think about it and plan for the unexpected will help make them more responsible.

Teaching your teen how to manage money properly, and making sure they understand the consequences of poor spending habits, will help mold them into mature adults who can make good financial decisions.

Fast Facts About Adolescents

The risk of motor vehicle crashes is higher among 16- to 19-year-olds than among any other age group. In fact, per mile driven, teen drivers ages 16 to 19 are four times more likely than older drivers to crash.

 

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