Are you feeling more like your teen’s personal ATM instead of the responsible boundary-setting parent you used to be?
Costs associated with electronic devices and games, brand name clothing, and frequent entertainment expenses can cause you to open your wallet weekly, sometimes daily. You know you should teach your teen that money doesn’t grow on trees, but life is busy, and you don’t know where to begin.
Start by turning these regular withdrawals from the Bank of Mom and Dad into opportunities to teach your teen a few personal finance basics. Here’s how.
Talk budgeting with your teen
The next time your teen attempts to make a withdrawal for entertainment or another expense, ask them, “How much did you budget for that?” While you might receive a side-eye glance in response, don’t miss this opportunity to introduce the concept of budgeting.
A simple way to explain budgeting is to use the 50/30/20 rule. This is where 50% of income goes toward recurring expenses, 30% toward miscellaneous spending, and 20% gets reserved for savings. Before handing over the cash, require them to list their expenses which might include:
- Clothing and accessories (brand name jeans, purses, wallets, etc.)
- Vehicle maintenance and fuel, etc.
- Entertainment (earbuds, movies, concerts, etc.)
- Subscriptions (video games, mobile apps, etc.)
If they have trouble figuring out what to include, encourage them to list the items they’ve purchased over the past 90 days. When your teen sees how much they’ve spent in a short period, they’re more likely to recognize how quickly their expenses add up.
Identify sources of income
Next, ask them how they could earn money to pay for their current expenses. They should add this information to their expense list. Encourage your teen to think outside of a part-time job at a restaurant or grocery store. Some young adults may not be able to take on a part-time job due to the demands of school and extracurricular activity. Other options for income include side jobs for neighbors, a regular allowance, or payment for completing chores at home. This should help your teen to think about where the money could come from to pay for recurring expenses.
Help them establish realistic money goals
After you’ve discussed possible sources of income, then you can help your teen establish realistic money goals. Based on their available sources of income, encourage your teen to figure out the kind of lifestyle they can afford. For example, if your teen wants the latest model electric vehicle, they can look at their income and see how long it would take them to save for that particular car.
Establishing realistic money goals might spur them into action to increase their income or adjust their expectations.
Open a youth savings account
Savings accounts can help teens understand the concept of delayed gratification, while also introducing them to compound interest. Talking about money in this way now can get them into a regular savings habit that can last a lifetime. Once they see how they can earn money by saving money, they realize the value of saving versus spending. You might even consider offering to match a percentage of what your teen saves each month as a reward.
You’ll find some banks offer accounts geared toward youth, with features such as a lower minimum opening deposit or a lower or no minimum balance requirement. So, be sure to check out all of your teen’s account options. You can help your teen save for the future and reach their money goals by opening a Show Me Savers Kids Club account at The Bank of Missouri.
Open a checking account with your teen
A checking account helps teens learn how to manage cash flow, while a savings account encourages saving for a specific financial goal. Assuming your teen has an income, they should make withdrawals from their account based on their budget instead of your wallet. Keep an eye on their spending by helping them balance their account each time they make a deposit. Keep in mind, you can be a joint owner of the account with them (and you’ll likely have to be if they are under the age of 18). This can help allow you and your teen to work together managing the account until they get the hang of it.
Be patient, teaching your teen to manage money takes time. Let them make money mistakes in the safety of your home before they go out into the real world where a money misstep can have lasting consequences. And remember, we’ll be here to answer any questions you or your teen have as you both navigate their first checking and savings accounts.