Money, cash, greenbacks, moolah, bills, loot, cheddar, cash money, dough — your teenager pleads that she needs it right now. Absolutely RIGHT NOW! There are clothes to buy, school supplies to replenish, friends to meet up with . . . things all requiring cash.
She’s not exaggerating. By high school, teens need a little money in their pocket. But before you wearily open your wallet for the umpteenth time, it’s OK to offer your teen something different: a helpful talk about the financial birds and bees.
When it comes to talking about money with our kids, most of us aren’t sure where to begin or what to say. Often, we say nothing — or toss out confusing and contradictory ideas: “You need money for your friend’s birthday present? OK, here’s $20, but remember: Money doesn’t grow on trees!”
What’s going on here? As a high school teacher, I’ve found three main reasons adults don’t teach their kids about money:
1. It’s a tension-filled topic in an already dicey aspect of parenthood. “If I suggest that he save some of his allowance, he may go out and get a tattoo this afternoon!”
2. The adults in the room were raised with the belief that talking about money is impolite and tacky. “I’m not going to answer my teenager’s question about how much we just spent on that vacation — I don’t want half the neighborhood knowing our business!”
3. Parents themselves have holes in their own financial literacy and feel unqualified to teach their own teens. Some may even be fearful of exposing their shortcomings on the subject. “I have NO idea what APR (annual percentage rate) or APY (annual percentage yield) means — stop asking me stupid questions!”
Giving kids a financial education offers them a financial “leg up” in life. It’s clear that they need it.
- 76 percent of all undergraduates have credit cards with an average debt of $3,173, and they will amass an additional $20,000 in student debt. (Source: Sally Mae, 2009 report)
- Young Americans ages 25–34 now have the second-highest rate of bankruptcy in the country, just after those ages 35–44. (Source: Generation Broke by Tamara Draut and Javier Silva)
And from a Charles Schwab 2011 survey:
- The starting salary expected by teens is $73,000.
- The median household income in 2009 was $50,000.
- Teens would like their parents to talk more about career aspirations, how to budget money, ways to establish credit and how to invest money. And 80 percent of 17-year-olds say that learning about money management is one of their top priorities.
What parents can do
What can you do right now to help your teenager learn about money? Just talking about it won’t do the trick — teens tend to tune out after a few sentences. But I’ve found great success in using real-world activities to engage a teen and drive home the basics of managing money. Here are some of my favorites:
Go on a date with your teen. Let them choose the restaurant. Give your teen a budget for the meal. Talk about the importance of setting boundaries for occasions and how to stay in those boundaries. Example: Drinks and deserts can add a lot to a meal’s cost.
When the check arrives, spend time reviewing it with your teen. Most teenagers have no idea how to calculate tax or a tip. Show them how you do it. Learning how to round numbers and calculate 15 percent is something a teen should know before they leave the nest.
“I never really thought about how to calculate a tip because my parents don’t let me look at the bill when we go out to eat. I thought a $1 tip per meal would be good, but I never really thought about it before.” — Mary, age 15 (comments are from Garfield’s students)
Take a “field trip” to the bank or credit union. Having a relationship with a commercial bank or credit union is essential. If your teen doesn’t already have a savings account, now is the time to make it happen. Explain that the best reasons to have a savings account is to set money aside on a regular basis to provide for future needs.
Your teen also needs a checking account — not only because of the services it provides, but because the activity of checking accounts gives teens real-life experience in managing the inflow and outflow of funds.
Before you leave the bank, make sure your teen uses the ATM machine and fills out a deposit slip inside the bank. Then let your teen treat you to coffee, using her own debit card. At the end of the month, show your teenager how to read her bank statement online.
“I never knew the difference between a savings and a checking account and why I would need both.” — Adam, age 15
Track your burn rate together. Parents and teens should save their shopping receipts in an envelope for every purchase they make with cash or a debit card every day for one week. They should also track the amounts of any money they receive throughout the week.
At the end of the week, sit down with your teenager and make a chart of “income” and “spending.” List all sources of income and spending under each heading and calculate a total for each. Try not to comment on each other’s spending habits.
Typically, teens are astonished — they never think about their cash-flow patterns and are amazed at how much they spend on food, gas, entertainment, clothes and make-up. What else don’t they think about? What it takes to earn money, especially if they get an allowance or ongoing handouts from their parents.
“I can’t believe how much I spend on junk food — it’s disgusting!” —Sousanna, age 15
Pay the bills with your teen. The best way for your teen to learn how to pay the bills is to do it themselves. I suggest the following bills: cell phone, cable, credit card, car loan/lease.
Have your teen open the bills and find what the bill is for, the due date, bill total, minimum amount due, past-due amounts, late fees, interest or finance charges. Talk about what each amount means. Show them how to pay the bills, whether using online bill pay or writing a check. Then discuss ways to reduce the amount of each bill.
“I never realized how much the cell phone bill was!” — Nathon, age 16
“Paying the bills takes so much time!” — Diana, age 16
“No wonder my mom is in a bad mood when she pays the bills!” — Youlen, age 17
Help your teen create a budget. Many people — even adults — think budgets are financial straitjackets. Actually, budgets are just road maps, and like every trip you take, you need to choose the best route. Budgets help you make choices.
Ask your teen to budget an event in his or her life — one that has a sizable price tag associated with it, such as prom, a family vacation, a special birthday party or a new guitar. If it’s a purchase or event that means a lot to your teen, his focus on dollars and cents will be laser-like.
Parents can help by outlining a realistic amount that’s available to spend. Encourage your teen to do some research, challenge them to find less expensive options, tell your teen “no” on some items, and have them come up with a budget that allows them to achieve their goal and also involves some sacrifice.
Patricia Saunders Garfield has been teaching personal finance, economics and other business-related courses to teenagers for 10 years. Along with fellow teacher Alyson Edge, Garfield cowrote the book Time Worth $pending: The Top 10 Talks to Have with Your Teenager About Money. Visit the author’s website at guidetofinancialliteracy.com.