If you don’t teach your teen about money management, what’s the worst thing that could happen? They learn it on their own?
Learning how to manage money on your own is not a risk I’d suggest you take. The nation’s consumer debt has surpassed one trillion dollars and most. According to a 2017 report by CareerBuilder, nearly 80 percent of American workers (78 percent) say they're living paycheck to paycheck. I think the data speaks for itself. Teens need help learning money management lessons.
Here are three things you can begin doing now to help teach your teen valuable money management lessons today:
Money Management Lesson #1: Delayed Gratification
Delayed gratification is one of the most important aspects of money management no matter your age. By nature, we love getting what we want when we want it.
When you teach your teenager about delayed gratification, it helps them to become more disciplined financially. When they want something, teach them to save for it. The key is to help them understand that they must earn the things they want. So teach them by having them do work around the house or ask to do yard work for a neighbor. Help them to connect the fact that when they work, they get paid, and then they can use what they’ve earned to buy the things they want.
You’ll find that they value what they have purchased with their own money a lot more than the things they are gifted. Agonizing over a $100 purchase and all of the effort it takes to get there will make them appreciate it more. You’ll find that when your teen buys something using their own money, they take better care of it and learn that their money has value.
Money Management Lesson #2: Paying Bills
You would think that paying bills is a “common sense” lesson, something that people automatically know how to do when they become adults, but that’s not the case. It’s important to assign a bill to your teenager, whether it’s their cellphone bill or their car insurance bill. Send them a payment reminder email or, better yet, just tell them the date their payment is due. If their payment is late, they get charged a late fee or they lose a privilege, like not being able to go out with their friends.
It’s important for teenagers to realize that when they don’t meet their financial deadlines, there are penalties. It’s much better for them to learn the lesson young, under their parents’ roof, than for them to learn the hard way by incurring high interest charges and late fees from credit cards after forgetting to pay their bill.
Money Management Lesson #3: Saving and Investing
There are many hard-working teenagers who do odd jobs to make enough money to save for college or pay for their car notes. However, along with those lessons about hard work and discipline needs to come an understanding of saving and investing.
Teach your teenagers about compounding interest using examples in your own home. You could offer them a small allowance, for example, but then increase it by a certain percentage if they decide to leave it in the “parent bank” for a few months. This also helps with the first goal of delayed gratification.
Smart teenagers can certainly follow investment news, companies they like, and services they use. Offer them choices, like putting money in their investing account instead of going to a concert, and allow them to decide between saving and spending. Over time and with enough education, they’ll come to learn the basic concepts of investing and can carry it with them for a lifetime.
These tips are easier said than done, but if you start the discussion and stick to it, this will become a natural part of your conversations as they mature financially. You’re simply aiming to give them the best example of money management possible so they can emulate success throughout their lives.