Money matters at every age. As our kids grow there are certain lessons that they should be learning. Be conscious about sparking age-appropriate money-related conversations. We all know teenage years can be difficult but instilling good money management skills will help raise budget conscious adults.
When kids are young, allowances and birthday money can help start lessons around saving, spending and money exchange, but as kids get into their teen years, money management becomes even more important. Most teenagers start to have responsibility outside the household with their first jobs and need to start thinking about paying for a significant life change – university, college, trade school or simply moving out on their own.
The lessons they are taught about money in their teenage years can determine their relationship with money. It is essential to talk to your teenagers about money, even if their response includes the dreaded eye-roll. Here are a few introductory topics and tips on how to start money conversations.
The first step in taking money and financial responsibility outside the home and beyond cash is to set up a bank account. Get pamphlets for your teen or ask them to look online at bank account options. Sit down and discuss the benefits of the bank account, how it keeps money safe but can also help it grow. Outline what they need to watch out for like monthly or yearly charges on the account.
A debit card also makes teenagers think about money in a different way. It’s not as tangible as cash and they will have to get into the habit of checking their account online to keep informed of their debits and credits.
Having a bank account in their name is the first way for your tween or teen to experience financial independence and is a critical step in their relationship with money. Since some banks limit eligibility for opening an account, a parent may be required to co-sign. This is a great opportunity to help manage the inflows and outflows but for the teen to have an increased sense of responsibility.
Once a bank account is set up in your kid’s name, it is the perfect time to talk about savings. When they get their first job, have their paycheck deposited right into the account. This creates accountability and independence.
It is also a good opportunity to start the conversation about how much money from a paycheck should be set aside for savings. Go over how much university or college is going to cost and how much is required to save from each paycheck. Explain how a budget isn’t solely about managing spending, but also about ensuring you are saving enough for long-term goals. Set up a budget spreadsheet that documents how much money they will be earning and how much needs to be designated for savings.
Saving for long-term goals like post-secondary education is also a great opportunity to start the conversation around interest rates. In this conversation you could get them to guess how much $100 invested today would be worth in 100 years with a compound interest of 5 per cent. Help them do the math. Relate this to important timelines in their own lives like university or saving for a house and lay out the time it will take to save the amount they need.
Getting teens into the habit of saving will set them up for a financially secure future.
Perhaps the most important money conversation to have is around spending and living within your means. The next time your teen asks you for extra spending money to go to a concert or shopping, remind them of the last time they asked and what it was they asked for. Also refer to their budget trackers. Get them to refer to their budgets and outline why the ask doesn’t fit into their budget.
Another important conversation to have with older teens is around monthly costs such as car insurance. As soon as they are 16, they can go for their license, but are the monthly costs worked into their budgets? As teens get more responsibility, their monthly costs also increase. It is important to consistently have them refer to their cash inflow and ensure that their saving targets are being met and budgets are adjusted accordingly.
The difference between things that teens need compared to things that they want needs to be consistently reinforced. The broader concept is delayed gratification and can be taught by receiving little to no additional funding from the ‘bank of parents.’
Once bank accounts are set up, the concept of budgets is discussed and spending and saving targets are put in place, then parents can introduce other concepts like taxes, investing, risk and debt. Remember to take it one step at a time and put in the effort at each stage. The lessons may seem difficult to teach and talk about, but they are incredibly important.
When teens feel impowered in their financial decisions and independence they will grow into money-conscious adults. Contact our Member Advice Centre to find out more about raising financially literate kids.