Most teenagers know little or nothing about money. The vast majority of kids aged 13 to 19 go to school full time and sometimes are forced to do required volunteer work(our high school requires 20 hours per year). Also, most teens participate in sports after school, so they don’t have much time for paid work.
In most states, a teenager cannot get a work permit until they are 16 years old. For most kids, this falls in the junior year of high school. Part time paid work(10-20 hours/week) is appropriate at this stage. Your teen can do yard work for neighbors(like I did) or even run their own pet sitting business(two of my nephews did this successfully).
Whether or not your teen has the time to work, here are some things you can teach him about money, how to save money, and why saving is important.
Get your teenager a short book on money and finances. Make sure it is written for teenagers, not adults. Take a look at on line bookstores or go to your local bookstore. Make sure “teenager” or “teen” is in the title. Take a quick look through the book before you buy it. If your teen is not much on reading, make sure the book has lots of pictures and graphs. Better yet, find a DVD that teaches teens about money and saving.
Show your teenager your savings book or your checkbook. Show him how to balance a checkbook. If you pay your bills on line, show your teen how easy it is to keep track of your bills in this way. Most banks allow you to check your savings or checking account balance on line. Show your teen your account and how you check the balance. Note: do not give your account password away, even to your teen.
Make sure your teenager has his own savings account. Checking accounts can wait until he is 18 or has a paying job. When his statement comes, go over it together until he understands everything that he sees there. Let him especially see how much interest he earned that month and why. He should know that putting money in a savings account allows the bank to borrow his money to lend to others. In order to do that, the bank has to pay him for the use of his money, hence interest payments.
Most teens seem to have no idea that in order to buy something, you have to save money first. DO NOT give your teenager his own credit card. This will only encourage him to max it out and then wonder how he is going to pay. Show your teen your credit card statement. Call his attention to the fact the if you do not pay your total bill each month, you get charged up to 20% interest. Pretend you have $1000 to pay at the end of the month. Point your teen to the minimum that can be paid, which will probably be something like $25. Take him through what will happen if he pays just $25 per month. Calculate how much interest he will have to pay, which will probably be twice as much as he owes!
No one should have a credit card until the age of 18, or better yet, after college graduation(usually 21 or 22). I’ll go further: no one should have a credit card without a paying job and a significant bank account. Anyone living paycheck to paycheck should not have a credit card. Let your teen know why you feel this way.
Most teenagers(at least boys) want their own car. Encourage your teen to start saving money now. Also let him know that you will match whatever he saves towards a car. Advise your teen to buy a used car first, preferably one that is not more than three years old. The best thing you can do is to let your teen have one of your cars(especially the one he has trained on the most). Then you can buy another car for yourself.
The worst thing you can do is to give your teen a new car for his 16th birthday. This only encourages the “something for nothing” mentality. It will also encourage dependence on you for everything. A prime example of dependence is having your college student bring home a huge sack of laundry. Why does he not know how to go to a laundromat and do his own clothes? Your teen must be as independent of you as soon as possible, preferably no later than 18.
Tell your teen that he must keep his first car for at least two years, or until he goes off to college. Once he is ready to go to college(and it’s within 300 miles of home), you might consider helping him buy a new car. Again be willing to match your college-bound teenager’s savings with your own. With an old car to trade in, you and your teen should be able to pay at least 25% and finance the rest. Make sure your teen knows that he is responsible for at least half the monthly payment. He can easily earn this via a part-time job.
Let your teenager know how good and satisfying it feels to be able to pay your debts off on time and to be debt-free. See if his school has any type of class on saving money or finances in general and make sure he takes the class.
Conclusions:
Your teen should know that it is no fun being in debt. He should also know that in order to stay out of debt, he must pay all his bills on time. You should talk a little about credit ratings and how he can earn a good credit rating. Let your teen know that a good credit rating will help him buy big-ticket items, like a car.
Once your teen demonstrates that he can pay what he owes on time and still save money, it’s time to teach him how to invest money in stocks, bonds, or other negotiable instruments.
Strongly encourage independence in your teenager. The more he can do on his own, the better off he will be. Discourage any dependence on your for money or for anything that he should be able to do on his own. Let him know how good it feels to not have to depend on anyone for anything.