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Most high schools in the US don’t teach basic personal finance skills to students. That leaves parents to teach children about money management. Luckily, going over skills related to managing money with your teen doesn’t have to be difficult. However, it should be considered a necessity to pass this information along.
Here’s what you need to know about managing money with your teen along with some helpful tips to get you started.
Managing Money with Your Teen: What They Need to Know About Expenses
Life is full of expenses and understanding what they are, where they come from, and how they need to be paid is critical for managing money over the course of your child’s life. To ensure you cover all of the basics, here are some key expense categories you should review with your teen.
If you’re alive, you have living expenses. Rent, utilities, food, and gasoline can all fall into this category. While your child may not have to keep an eye on costs associated with living in a dorm, as most of the basics are rolled into a single lump sum payment, or participating in a meal plan (which is often paid in full, up front), they’ll likely be responsible for at least a few of these costs.
You can begin this process by discussing techniques for managing money in relation to the expenses your child will inevitably take on. Anything from transportation to cell phone bills can be fair game, and the cost of food (especially dining out versus eating at home) should be covered.
This can be an excellent starting point for teaching them how to create a budget to help make managing money easier. Review what their known expenses will be, when those costs are due, and how much it takes to keep everything paid up.
These are the costs that provide your student with the essentials they need to (literally!) survive, so let them know these should always be priorities.
Student loan debt is the second highest consumer debt category in the country today. There are over 44 million borrowers, and they owe a total of nearly $1.3 trillion! While many students avoid this debt thanks to grants and scholarships, not everyone is able to avoid it. This means teaching your teen about how student loans work should be a priority, as it may be the first kind of debt they encounter.
Unlike in the past, many teenaged college students are spared from credit card debt thanks to the Credit CARD Act of 2009. The mandate prevents anyone under the age of 21 from being approved for a credit card without an adult co-signer. However, if a parent chooses to allow their child to have a credit card, then teaching them about managing money in relation to these debts is essential. Additionally, once your student is 21, all bets are off, and they can apply if they see fit, so teaching them about the trappings of credit card debt now can save them a lot of heartaches later.
If your teen has or will have debt when they go to college, then it’s important to add these to the budget you began when addressing their expenses. The purpose is to give them tools for managing money today and into the future and helping them see how these costs limit what they can do with their income is important.
Managing Money with Your Teen: What They Need to Know About Income
It’s hard to teach your teen techniques for managing money when they don’t have any money to manage. A great way to help ensure the points above hit home is to have them start making some of these hard choices now.
If your teen drives, then they have at least some small expenses which can begin falling on their shoulders. The cost of gasoline for trips out with friends and even a portion of their insurance costs may make suitable starting points for learning about managing their money.
Now, they just need an income!
To teach your child about managing money, here are some potential sources of revenue worth exploring.
Managing Money with a Part-Time Job
Most teens who are getting close to college age are likely old enough to hold a part-time job in their state. This can be an excellent way for them to learn about a variety of skills related to managing money including budgeting, how to handle IRS withholdings, and tax filings.
A part-time job also allows them to build valuable skill sets, giving them avenues to improve their communication skills, learn the fundamentals of customer service, how to multitask on the job, and more!
Anything from fast food and retail to babysitting and pet sitting could be appropriate as there are tons of , and all offer important lessons your child could learn from the experience. They will also make your child more competitive when it comes to scholarships, admissions and job hunting in the future. If you’re open to the idea of teaching techniques for managing money by allowing them to get a part-time job, consider searching for opportunities together. That way, they can get your insight about participating in the workforce, and you can make sure you are comfortable with the options they choose to pursue.
Managing Money with an Allowance
Some parents prefer their teens concentrate on school work instead of a part-time job, and that’s okay! However, if you want your child to learn about managing money, you’ll need to find a method for them to acquire some cash.
In some cases, compensating your student for taking on extra household chores can be effective, and it gives you a break from some of the day-to-day work associated with managing the home front. If that sounds like a great deal, here are some tasks you could delegate to your child (some also provide them with valuable information they can take forward into their lives):
- Meal Planning and Cooking
- Taking Vehicles in for Maintenance
- Lawn Mowing and Yard Maintenance
- Caring for Younger Siblings
Another allowance method involves paying your teen based on their performance. For example, if they get good grades on their report card or an important test, considering giving them a cash reward. You can even pay them for applying for scholarships, giving them tools to learn about managing money AND helping them avoid student loan debt! We’ve had a few of our course parents do this.
Regardless of whether you prefer to let them get a job or would rather provide an allowance, giving them access to a (limited!) source of funds that must cover their expenses and other activities can create a strong foundation for better skills to help with managing money in the future.
Once they begin bringing in some cash, sit down with them and assist in the creation of a budget based on their income and expenses. Soon, they’ll learn just how far their money does (and doesn’t) go, using a real-world experience to really make the point stick.