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Teaching Your Teens To Manage Money |
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My first real job was cooking french fries and waiting on customers at
McDonald's in my hometown of Carmichael, California. At sixteen years
old, I was making an awesome $2.25 an hour and feeling rich every two
weeks when that pay envelope hit my hot little hand.
Having been raised in a family where money was usually quite tight, I
had learned the value of being frugal by experience. But I have to
admit, I didn't always make good decisions about how to use that
important resource in my life.
As I have watched my teenagers at their first part time jobs as high
school students, I have relived some of those painful memories. As I
see them "squander" their play money on everything from junk food to $250 prom dates, I remember the feelings all too well.
But, fortunately, my wife and I have tried to instill some good habits
of savings and budgeting in our children from their very first
allowances. And now all three of our teenagers have healthy balances in
their college funds and have learned the value of money.
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. Also, sit down
with your teen at the computer and visit the Checkbook Basics site
at aboutchecking.com. This site offers online lessons in writing and
recording checks, reviewing statements and balancing your account.
A Few Words About Credit Cards
Even with good training, teenagers can sometimes have real difficulty
with the onslaught of credit offers they receive, usually in the senior
year in high school and early college. Times have changed since we
fathers were teens. A credit card was seen as a mark that you had "made
it"--that you were credit-worthy. Today, teens get offers in the mail
for cards with credit limits that make us cringe. What are some
guidelines for helping your teens treat credit with the respect it
deserves?
1. Helping them understand credit will help them respect it.
Understanding how credit cards work is a big help to teens. They
certainly won't get the true story by reading the ads and solicitations
they or their friends receive. Some really good tools for fathers who
want to help teach their children about credit include:
* Credit Card Payoff Calculator.
This site shows you at various interest rates how long it will take to
payoff a given balance if you only make minimum payments. This is an
incredibly easy resource and the truth can be astounding!
* Written just for teens, the Learn Good Credit Management Page at studentcredit.com can really help a teen understand why credit card companies want them and how they can discipline themselves.
2. Start them out slow. With continuing concerns about teens in credit
trouble, it makes some sense to teach them the value of good spending
habits with plastic. There are several opportunities to do this with
some innovative products. Visa offers a card they call Visa Buxx
which is a prepaid Visa card. A parent or teen loads the card with
value via electronic funds transfer and then teen then uses the card
until the limit is reached. VisaBuxx provides online web access to
spending records and allows funds to be added to the card at the
parents' initiative.
3. Think about intervention. One of the best ideas I have seen is a
credit card sleeve that is marketed by the Institute of Consumer
Financial Responsibility. These sleeves have messages on them like
"Warning: Overuse is Dangerous" and "If You Can Eat It, Drink It, or
Wear It, It is NOT an Emergency." Visit the ICEF site for information on these sleeves.
4. Don't Bail Them Out. If, despite all your best efforts, your teen
gets overextended on credit, take a firm hand. Let them experience the
consequences of bad financial decisions. You can accompany them to
visit the Consumer Credit Counseling Service
in your area and help them find a way to get out of debt on their own.
It's better to help them take responsibility for a $2,500 debt than a
$25,000 debt later on!
Wayne Parker is the father of five active children ranging in age from
10 to 21. He is a consultant and trainer dealing in work-life balance
and other career focused issues.
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