By Kris McDowell
Many teenagers have part-time jobs during the school year and others take advantage of school being out for the summer to get a job. Those early first years earning a paycheck can be the start of financial independence, but not without some guidance on budgeting, saving and making sound decisions for the short- and long-term.
Unless teens have the opportunity to gain financial literacy in the course of their schooling, parents have the responsibility to guide them, which can be tricky. Amy Maliga, financial educator with Take Charge America, a nonprofit counseling and debt management agency, says, “Many parents want to guide their teens toward making wise financial decisions, but aren’t sure how to approach the conversation.” She suggests, “bringing it up in a way that gets them excited about saving money rather than positioning it as another set of rules.” Perhaps they have talked about wanting a new phone, computer or even their first car. Working toward a goal of saving enough money to afford an item they desire, rather than just “saving for a rainy day” may be a more effective strategy.
Maliga recommends providing insight into your own decision-making process to teens. Give examples of how you budget, create savings goals and spend your money. Share the pros and cons of those decisions and the long-term impacts to help them see the reasoning behind your current choices. By having transparent conversations, you can help them build their confidence in talking about their spending habits.
Another tip is to ask your teen about their savings goals. Using their excitement about what they would like to save for can make the process more approachable. Additionally, try to remain neutral about what they identify as their goals, as frivolous as they may seem to you. It’s more important to teach them the tools to save than it is to pass judgment on their savings goals, which may make them less receptive to your talks with them.
Achieving financial goals starts by creating a budget, identifying how much money is coming in and how much is going out. Help your teen structure a basic budget to track their expenses. Take Charge America has a short video on the basics, found at bit.ly/TCAbudgeting, that covers the hows and whys of budgeting.
If your teen doesn’t already have a bank account, help them establish one at a bank or credit union. Many offer fee-free checking and savings accounts specifically for teens that include a debit card. Teach them how to use the bank account, including guidance on using ATMs, which may have fees associated with their use. If the decision is made for the teen to have a debit card associated with their bank account, parents can also provide a layer of oversight by setting spending limits on it. Their account may also have the option for mobile banking and payment apps and parents should talk about ways to use these tools safely.
A final tip from Maliga is to create some healthy household competition to make a game out of saving money. Each family member would start by identifying a savings goal and then determine what the metric for achieving their goal is. Maybe it’s who can save the fastest or who can save the most (or a percentage based on income) in a set period of time. Creating a healthy competitive environment at home can foster mutual excitement and accountability.
Giving teens the tools to manage their finances early on will reap rewards for a lifetime. For additional resources on building savings and budgeting, visit takechargeamerica.org.