Thrive!

Money 101

By Randy Hasper

What you are currently teaching your teens about money has everything to do with whether they will be in debt up to their eyeballs ten years from now. The teen years are the habit setting years – whether it’s snacking, studying or spending. These are the years when young buyers (and their parents) begin to spend some serious cash, and so this is a parent’s best and perhaps last chance to teach life-long financial skills.

The financial community is ready to put plastic in the next generation’s wallets, but do our young spenders know when to pull it out and when to put it back in the holster? CNNMoney reports that high school seniors, on average, answered only 52.4 percent of the answers correctly on a financial survey.

The consequences of not teaching the next generation about money are clear. According to Dr. Robert Manning, the author of Credit Card Nation, the fastest-growing group of bankruptcy filers is people age 25 and younger. Will your teen be filing ten years from now?

Here are ten things you can do right to positively shape your young spender’s financial future:

1. Show them the money.  One of the best things you can do for your teens is to put them in touch with prices. Show them the gas and electric bill, the phone bill, the car payment, the mortgage or rent.

My wife and I have our young spenders go grocery shopping with us, picking out the best deals together, stopping to grab that half-gallon of cookie dough ice cream because it’s on sale. Several times this last year I had one of my daughters pay some bills with me on-line. I let her do the clicking, entering the $80 for the family mobile phone policy, the $65 for the water bill. In the fall, when I was out of the country, I asked her to pay some bills for me. She pulled it off like a financial cyber-pro.

 

2. Bankroll them.  Young adults will cost you, whether they manage their money or you do.  When they are little we give them allowances. As they age we need to give them an increasing amount of money until they manage all their own expenses. Figure out what you spend each month on your teens (not housing or food), but clothes, lessons (piano, dance), french fries, cosmetics, and entertainment. This might be a significant sum, but it is what it is. Then each month give them that amount of money and let them do the paying. In this way, they learn to set priorities (jeans this month, shoes next), and to make consistent payments for their lessons. If they run out, don’t rescue them. Make them live in the real world of you’ve got what you’ve got.

This is the best route to financial independence. Last December, my seventeen year old bought, with her allocated money, all the Christmas presents that she gave. Last week she picked up a pair of Converse shoes and Lucky jeans. Her choices are wonderfully up to her.

3. Make ‘em pay.  There are some things that most teens won’t be able to buy without you, perhaps it’s the MP3 player, the cell phone, the cost of their involvement in a school activity, their first car, college. There is still value in them paying something. Require them to save up a portion of the cost. It’s a great chance to teach so many things, not the least being learning to delay gratification.

When my daughter wanted an expensive MP3 player, we discussed with her what she could contribute to the purchase. This was a bit tough on her, but we talked it out and she proposed a figure. It was a significant amount of money for her, so she had to wait, and work and save. But when the time came to buy, it was a meaningful, satisfying buy.

4. Show them the cost of money.  Explain interest to your teens. This matters! You are protecting their future marriage. Financial stress and conflict are leading causes of divorce. Show your teens the amount of interest you pay on your home loan, your car loans, and your credit cards.  Explain that, for most people, things like a home purchase require paying interest.

Show them, on the other hand, the danger in debt. I show my daughter our credit card statement. The daily periodic rate is .0828%. That doesn’t seem like so much now does it? The annual percentage rate is 30.24%. Now that is a monster we avoid!

I know a parent who will loan her teens money if they are out shopping and forget to bring their wallets along. But she charges a small amount of interest. She’s not making money, she’s making responsible people.

5. Introduce them to a banker. To aid our empowered spenders in controlling their money, we took them to our credit union and helped them open savings accounts and obtain ATM cards. Once they leaned to manage those, we moved on to Visa check cards, debit cards. Different institutions have different policies, but we found our credit union very helpful. Now both girls have checking accounts, and they keep track of these online. They have small savings accounts so that if they go over there is overdraft protection.

But they are learning that when the money is out, the money is out. If they incur fees, they are responsible for them.  And we don’t bail them out. The best financial teacher is experience. Not every teen is ready for this, but at some point they need to get ready for this. Adulthood, it’s coming fast.

6. Shop ‘til they drop.  Then next time they want to buy something important to them, comparison shop with them. Take a trip with them on-line to web sites that offer product reviews and comparisons. Go with them to several stores before making big purchases. Show them how to look for sales in the newspaper, how to use coupons.

When my daughter upgraded her mobile phone recently, we read the reviews on the internet. Through our research we found the coolest phone at the coolest price. What a fine feeling – tracking down and capturing a great deal!

7. Share a classic with them.  Help your teens set up a savings account and a savings goal.  Saving is at the crown jewel of good money management. An emergency, a sudden need doesn’t throw the saver into a panic. Capital, margin is an antidote to financial stress. And through saving, they can eventually get some really cool stuff.

They can save up for a trip, perhaps for their part of a car. My oldest daughter bought her own TV, after saving. She bought a leather couch for her room – saving.  She bought her own PlayStation – saving. She has the most fun room in the house – because she saves before she spends.

8. Don’t forget generosity. Having something to give is a privilege, a pleasure. Begin to talk to your teens about charity. It is their choice, but you should share what you do as a model. Show them what you have donated to disaster relief, medical research, your alma matter, your church, synagogue or mosque.  It is more blessed to raise generosity than stinginess. You may be raising the next Joan Kroc or Bill Gates.

My wife and I help support a young teacher who works for a nonprofit organization that runs a first-rate school in an inner city area.  Following our choice one of our girls decided to donate some of her money too. How satisfying!

9. “Get a Job.”  During the school year, we have decided that we don’t want our teens working, or working very much. We want them to focus on their studies, to enjoy life when they finish the homework. But they can do something. The occasional Saturday job, the short-term summer or intercession job – it’s excellent training. In some markets, it can be very hard for teens to find a job on their own. We found success in helping our young adults get their first jobs through friends and personal connections. It may be mowing lawns, babysitting, working for a friend with a business.

Recently, one of the girls got a job tutoring a younger student. It’s perfect! Four hours per week for really good money. Excellent possibilities are out there for  the go-getters who have connections.

10. Be the model. There is no more powerful influence than the power of a good model.  If you make smart choices your young spenders will see how to make smart choices. If you show restraint, they will have a model of restraint. If you overindulge, show them what it is costing you. If you make a late payment, show them the late fees.  When you get a bargain, brag about it. The girls know which new sports car I like. They also know that I don’t have one in the garage.

We love our kids. Because of this we plan ahead for them, saving for college, perhaps investing in real estate and mutual funds that may someday provide for them and their children. We are investing in them, in their future. Someday we will spend big bucks for them, on cars and college and weddings.

But when they arrive at adulthood, when they have the bucks, when they have the plastic, when they inherit the assets, will they know how to handle it all?  What we do today, will help determine how they spend tomorrow. Money 101, you’re the teacher, and class starts now.

What do you think?