Tips for Teaching Teens about Finances – Do As I Say, Not As I Do?

At Community Ladders, many of our members come in wanting to avoid the financial mistakes their parents made, and they feel like no one has ever taught them how to think properly about finances. If you have teenagers, now might be your last shot to instill a sense of financial responsibility in them before they go off to the loose-credit world of college and young adulthood. Here are some tips for nudging them in the right direction.

First, as with any habit, you get the best results when you start early.  Many parents find it useful to provide their children with financial remuneration in exchange for household chores.  My parents set up a mock bank for me when I was a pre-teen, and “deposited” my weekly allowance along with monetary gifts I received.  Then they stopped paying for the non-essentials for me.  If I wanted a the latest Ninja Turtles NES game or VHS movie (this was the early 1990s, after all), I had to examine my bank account to see if I could afford it—which forced me to prioritize my spending at an early age and budget long-term for big purchases.  To this day, I’ve never missed making a full payment on my credit cards.

Experts also encourage parents to make their children partners in saving for their college education.  Parents should be frank about the extent of their ability to pay for college tuition and expenses from an early age, and prepare their kids for the possibility of future loans to support educational goals.  Regardless of whether college students will need to take on student loan debt or not, adolescents and teenagers should consider contributing to their college savings plan*, such as a tax-advantaged 529 plan.  Parents and future college students can sit down together and look at this useful expense calculator from FINRA, which highlights how investment costs can lower returns (in other words, use this calculator to make sure you’re not putting your broker’s kids through college instead).

More hardcore parents can take my dad’s approach. He mandated a full 50% split of all my limited income sources, between my personal spending money and college savings. For years I thought my dad a tyrant.  I watched half of my allowance, birthday gifts, and even paychecks from my after-school jobs flow toward my college savings, this abstract thing which seemed an eternity away.  I didn’t understand how smart this was until I was older, obviously, and appreciated just how expensive a college education was.  I graduated with a BA and no debt.

Proactive parents can work with their teenagers to develop effective financial planning habits.  But, talking with kids about money (especially if you’ve had financial trouble in the past) can sometimes be awkward. In these cases, you might consider getting your son or daughter a Community Ladders membership.  The organization has a $10/month membership for students from high school through graduate school.  The whole reason for this $10 program is to develop positive financial habits from an early age into adulthood and full independence.  An advisor can work with your teenager or college student to get them on the right path to realize their personal, educational, and professional goals.

In general, modeling responsible behavior is one of the best ways to encourage kids to develop healthy financial habits. If your financial situation is under control, keep up the good work!  Loop your child into your financial decisions and the expenses you face every day. If your finances need some work though, perhaps consider a Community Ladders membership for yourself. Even if you are struggling with finances, it’s OK to share this with your kids.  Let them know that it’s difficult and explain why.  Don’t leave them to figure it out on their own 5 years from now.