My most important goal for my children is that they grow up to be independent human beings. Although my twins are only a few weeks shy of being one year old, I fully plan to discuss money management tips with them from now (while they can’t talk back) until they’re teenagers and beyond.
I had an unusually good grasp of money management as a teenager, not necessarily because I’d been taught but because I am disciplined by nature. My parents gave me $100 a month on a pre-paid Visa card for all my incidentals (including clothing) from the time I was about 15 all the way through college. I rarely asked my parents for extra money on top of this.
If I wanted to buy clothes from Abercrombie & Fitch, I used that pre-paid Visa card. I remember I once had a school dance and didn’t have enough money at the end of the month to get my hair done and buy my date a corsage, so I asked for a small increase in the amount on the card from my mom. (She gave it to me, of course.)
In college, I used that $100 plus any money I made at my side jobs to go on spring break trips and movies and anything else I wanted to do. I don’t know if my parents intended it or not, but this was some of my earliest forms of budgeting, habits that I keep with me to this day.
So, while I’m not a parent to teenagers, I am in my 20s — which means being a teenager wasn’t that long ago. I feel like I learned some great lessons about money management during that time, and it’s something I want to pass on to my children, plus some extras.
Lesson No. 1: Delayed Gratification
Delayed gratification is one of the most important aspects of money management for people of all ages. We live in a buy-it-now society where, if we want something, we just go ahead and get it.
When you teach your teenager about delayed gratification, it helps them to become more disciplined financially. If they want new clothes or a video game, teach them to save for it. Teach them to do odd jobs in the neighborhood. Help them to connect the fact that when they work, they get paid, and then they can use that money to buy what they want.
I remember buying a lime green iPod with some of the first money I ever made myself. I agonized over the $200 purchase, but I still own the same iPod almost 10 years later. When teenagers buy something using their own money, they take better care of it and learn that their money has value.
Lesson No. 2: Paying Bills
You would think that paying bills is a “common sense” lesson, something that people automatically know how to do when they become adults, but that’s not the case. It’s important to assign a bill to your teenager, whether it’s their cellphone bill or their car insurance bill. Send them a payment reminder email or, better yet, just tell them the date their payment is due. If their payment is late, they get charged a late fee or they lose a privilege, like not being able to go out with their friends.
It’s important for teenagers to realize that when they don’t meet their financial deadlines, there are penalties. It’s much better for them to learn the lesson young, under their parents’ roof, than for them to learn the hard way by incurring high interest charges and late fees from credit cards after forgetting to pay their bill.
Lesson No. 3: Saving and Investing
I know there are many hard-working teenagers who do odd jobs to make enough money to save for college or pay for their car notes. However, along with those lessons about hard work and discipline needs to come an understanding of saving and investing.
Teach your teenagers about compounding interest using examples in your own home. You could offer them a small allowance, for example, but then increase it by a certain percentage if they decide to leave it in the “parent bank” for a few months. This also helps with the first goal of delayed gratification.
Smart teenagers can certainly follow investment news, companies they like, and services they use. Offer them choices, like putting money in their investing account instead of going to a concert, and allow them to decide between saving and spending. Over time and with enough education, they’ll come to learn the basic concepts of investing and can carry it with them for a lifetime.
I know that many of these are easier said than done, but if you start the discussion when your children are young, this will become a natural part of your conversations as they get older. My children can’t talk yet, but I know they are absorbing some lessons from us as parents. So we’re aiming to give them the best example of money management possible so they can emulate us throughout their lives.