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Is Your Teen Money Smart?

Mike McCoy





Having been a professional in the personal finance sphere for many years, I have seen exactly how damaging money mismanagement can be to people’s lives.

Unfortunately, according to this year’s Junior Achievement USA’s Teen and Personal Finance Poll, more than a third of the teens surveyed “think their parents do not talk with them enough about money and budgeting.” Forty-two percent said they are expressly NOT interested in learning how to budget, while 25 percent feel budgets are only for adults.

These statistics, combined with the lack of even basic financial education in most schools today, underline the need for parents to step in to help their teens with financial literacy. Teenagers need to develop and practice smart money habits now, as these skills are necessary for future financial health and happiness.

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Budget Basics

The foundation of a healthy relationship with money is keeping track of what is coming in as well as expenses that are going out. When it comes to teaching teens about money, the single most powerful tool is the (dreaded) budget, which you can introduce to your teen as a condition of getting an allowance.

I find that a monthly allowance works best, making my three teenage sons really think about what they want to spend their money on – and they know they won’t get a bailout if they fall short before the end of the month. Sit down with your teen and talk about what his allowance needs to cover (after-school snacks with friends, movies, iTunes downloads, hobbies, etc.), and then have him map out the upcoming month.

Using a simple budget will help him get used to making money decisions – as well as mistakes – in a safe environment without the fear of far-reaching repercussions.

Practice Self-Control

Consumer marketing and peer pressure will test your teen’s devotion to his budget, so every time he wants to spend, have him ask himself if what he wants is truly a want or a need. This process can be very illuminating when budgeting ahead (does he really want to allocate $XX to Starbucks every month?) and is a great habit to follow when he’s out and about.

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Setting a specific savings goal can also help your teen maintain spending control. Believe me, temptations can be dispatched when he considers how much he still needs in order to get his hands on that new PS4.  

How Money Works

Make talking about how money works an open and ongoing conversation in your household. Teach your teen about the costs of essentials like food, energy, transportation and housing, so he has realistic expectations for the bills he will be facing when he’s out on his own. A summer job is a great way for him to earn money as well as to learn about income and other taxes.

Also, does your teen understand the costs and ramifications of borrowing money? Walk him through the terms and responsibilities associated with getting a bank loan for a car, and how to use credit as a way to build a good record rather than spending what he doesn’t have. One good exercise is to look at a non-essential big-ticket item like a huge TV, and calculate how long it would take to pay that off at the minimum monthly payment on a card with an XX percent interest rate. It is sobering to see how much that TV would really end up costing over time.

Although it can initially be awkward to get those money conversations started, the fact is that the more teens learn about money and how to manage it, the more likely they are to make smart decisions that will positively affect their financial futures.

Mike McCoy is the Chief Executive Officer of The SpendSmart Payments Company, helping families teach teens responsible spending habits with the SpendSmart™ Prepaid MasterCard®.

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