Most people get their first job as a teenager. For many, this first job is babysitting, pet or house sitting, dog walking, shoveling snow or mowing lawns. For others, it is a job at a restaurant, local store, movie theater or other entertainment venue. The reasons for working are many: to keep busy, to gain experience, to learn responsibility and of course to earn money. Whatever the motivation, money is usually involved. Working a minimum wage job for only 20 hours a week is over $500 a month. To most kids, this sounds like a fortune. As parents, we need to offer guidance about what to do with it all.
Teach them the basics: save, spend, donate
Financial experts recommend separating money into categories: to save, to spend and to donate. Saving is important and is a good habit to get into from the very start. You may actually want to have a couple categories for saving: an emergency fund, a college (or other goal) fund, and possibly even a retirement fund (anyone who has earned money can open a Roth IRA). There are multiple ways to create these accounts, and different methods will work for different people. Some people are visual, and clear jars or envelopes work well. Others prefer to keep the money in the bank, where it is inaccessible, and use a ledger system to record how much is in each category, or even separate the categories into different bank accounts (just be aware of any fees your bank may charge). The method is irrelevant; the point is to make regular saving a habit.
Expect them to pay for things themselves
If your child has a job and a regular income, you can declare the Bank of Mom (or Dad) to be closed. Of course you will still provide basic needs, but they can cover any costs associated with their social lives themselves. Not only does this help you out, it also gives them a sense of independence. They are learning that they can do some things on their own and picking up important life skills along the way. Help them establish a budget and set up a system, but then let them handle at least their spending money themselves. (You may need to oversee the savings to help avoid the temptation to dip into it when the spending money is gone.)
Let them spend their money
After you have established guidelines and outlined which items you expect them to pay for (perhaps personal items, activities, school expenses), let them decide how to spend their discretionary funds. Offer guidance and express your opinions on what is and isn’t worth spending money on; then let them spend it frivolously (as most will). This will be difficult to watch, but it is the best way for them to learn. When it is gone, it is gone, and they will have to work more to earn more. If they come to you for money to go out with friends, refusing them will reinforce this lesson.
Give them money tips
Bring money up in casual conversation. Point out times money mistakes have been made (theirs or yours – it is okay to share your own failures). Suggest that they only carry as much money as they will need or are willing to spend; routinely carrying only a small amount reduces impulse purchases. Provide tips on avoiding pickpockets or scams and warn them that flashing money around may look impressive to some, but can make them a target. Suggest they tuck a certain amount away in a separate section of their wallet “in case of emergency.” Remind them how it is easy to spend money when you have extra cash but that you otherwise wouldn’t miss buying many of those things. Institute a policy of having a “waiting period” for major purchases: wait 24 hours to see if you still want it. Suggest that they save for (or offer ways to earn more for) big ticket items. Point out when items go on sale and compare prices at different stores. Challenge them to find a better price online (factoring in any shipping fees). Have them check for coupons (even major department stores sometimes feature coupons in their ads in the Sunday paper).
Open a bank account in their name
Besides being a safe place to keep your money, a bank provides flexibility in accessing funds. If your child is under 18, you will likely have to open a joint or even custodial account. Few people today use cash, so your teen could get practice with a debit card before leaving home. Actually using the debit card isn’t difficult; it is remembering that each use takes actual money out of your account that is the challenge. Remind them to record each transaction and to keep tabs of their account online. Make sure they are aware of overdraft fees and any other fees associated with using the card. Link the card only to the “spending” account. While linking accounts seems convenient, it is likely too convenient and can sabotage saving.
Say no to credit cards
I know this is a controversial topic. Many parents today insist that their teens need a credit card when they go off to college. Some financial experts also say that you should establish credit before leaving school to up your credit score. I disagree, for the most part. I don’t believe that a college student needs a credit card while in college. Although in some cases, it is an easier way to make purchases that parents may be willing to pay for (such as textbooks), I think the temptation is too great to make unnecessary purchases. The last thing a college student needs on graduation is credit card debt. Having said that, some banks automatically provide a credit card with student accounts. I learned this when one was delivered home and I quietly put it away. (I was also on the account, so it was addressed to us both.) Although I didn’t realize it, having the card and not using it provided a credit score boost (so there is a plus).
Talk about the big picture
As our kids grow up, they will need to know about more complicated money issues. Pointing out where all the money goes will help them become more responsible, independent adults. They need to know about things like insurance, mortgages, car loans, taxes and retirement. If they learn good money habits when they are young, they are more likely to have financial success later in life.