Teens and Money
Youth fads come and go, but one trend remains the same: Teens love spending money. According to a recent study, kids ages 12 to 17 on average spend $46 a week — that’s $2,392 annually — yet most have no sense of personal finance. "It's essential to teach kids about money management now, to protect them from a future of unchecked spending and debt," says Linda Sherry, a spokesperson for Consumer Action in Washington, D.C.
First, you need to create a budget with your kid. Discuss his various expenses and let him know what you're willing to pay for. Determine an appropriate allowance — teens need pocket money to understand the consequences of their spending decisions. Make it clear that there will be no cash advances, and set boundaries. "If a purchase violates your values, it's your responsibility to say, 'You may not buy clothing with offensive language,'" says Janet Bodnar, author of Raising Money Smart Kids (Kaplan). Once the ground rules are set, step back and let your teen test his buying power.
Where Do Teens Get Their Money?
Parents: 54 percent
Gifts: 35 percent
Allowance: 22 percent
Household jobs: 30 percent
Part-time jobs: 27 percent
Full-time jobs: 8 percent
Source: Main income sources for 12- to 19-year-olds from Teenage Research Unlimited, Northbrook, Illinois. (Figures don't add up to 100 percent because respondents could choose more than one category.)
Here are the most common teen money pits and the ways you can teach them to lessen the financial damage.
Money Pit: Clothing and Accessories
The Challenge: Your child needs clothes, but that doesn't mean $100 sneakers.
Before You Open Your Wallet: Together, write down what's needed and estimate prices. "Negotiate without arguing," suggests Jayne A. Pearl, author of Kids and Money (Bloomberg Press). If your daughter insists on five pairs of jeans when you think three will do, put two on the maybe list. Add up everything and then establish how much you're comfortable spending.
Money-Smart Strategies: Accompany a younger teen (with the list) to the store. Direct her toward sale items, and show her the cost of cool — the premium paid for designer labels — by comparing discount-store items with ones in the boutique area. If she still wants the more expensive items, either just say no or have her pay the difference.
For older teens, allot a seasonal clothing budget. Louise Morgenstern of Larchmont, New York, gives her teens a set amount but takes care of big-ticket essentials, like coats. She states her rules up front: "When the money's gone, it's gone."
Money Pit: Cell Phones
The Challenge: You consider a cell phone a safety item for staying in touch with your teen; your teen regards it as a social necessity.
Before You Open Your Wallet: Figure out what plan best suits your family's needs. Prepaid plans are most economical, but kids can easily use up their minutes. Linda Testino chose to pay per call and has one phone for her kids to share. (Who gets it is determined on a case-by-case basis.) If you usually talk to your kids from your cell phone, consider a family plan with multiple phones, an ample pool of minutes, and unlimited calling between family members.
Money-Smart Strategies: Explain when it's cheapest to make calls and discuss the extras that run up the bill, like downloading ring tones and games. "I'll only pay for the basics," says Pearl. "If Ryan goes over his minutes, he has to cover it."
Money Pit: Food and Entertainment
The Challenge: Burgers, smoothies, and movie tickets eat up your child's allowance, leaving him constantly broke.
Before You Open Your Wallet: "Kids need to track how much they spend each week," says Neale S. Godfrey, author of Money Still Doesn't Grow on Trees (Rodale). Go over the amount and estimate what's spent annually on everyday treats. Explain how, by eliminating a weekly $6 fast-food outing, he'd save up enough in a year to splurge on a "can't live without" item, like an iPod.
Money-Smart Strategies: Encourage your teen to think about the choices he's making and to set his own limits. Is it more important for him to eat out or go to the movies with his friends every time, or can he skip it now and then so he can afford something else later on? Maybe he can suggest cheaper alternatives, like splitting a pizza or renting. "I try to show my son how to cut back without sacrificing his social life," says Linda Testino of Dingmans Ferry, Pennsylvania. On the three nights her son has wrestling practice, teammates chip in $7 each for dinner for a total of $21 a week. "I told him he could order with them once a week, but he has to brown bag it the other two nights," she says.
Money Pit: Electronic Gadgets
The Challenge: Your teen begs for the latest video game system, MP3 player, or digital camera, arguing, "But everyone has one!"
Before You Open Your Wallet: "Remember, this is not an entitlement," says Godfrey. If you decide to let him buy it, have him cover part or all of the cost. "A large expense is a lesson in empowerment," she says. You're helping your child learn delayed gratification. And after seeing how long it takes to save up for something pricey, he may realize that he really didn't want it as much as he thought.
Money-Smart Strategies: Ask your child to search for the best deals in catalogs and online. Explain that if she waits until the latest model has been out a while, she may find it on sale. Also emphasize that electronic items quickly become obsolete, and inevitably, an even better one will be available.
Money Pit: Special Events
The Challenge: There's always some occasion coming up — whether it's the prom, a sports camp, or a school trip. Not to mention that must-see ball game or concert.
Before You Open Your Wallet: Distinguish between enrichment and extras. Louise Morgenstern won't pay for sporting events or concerts, but will partially cover most educational trips and sports clinics as long as her kids kick in something, too. The amount is determined by the price, how long they have to save, and whether they have additional income from a job. "It's all about trade-offs and cost-sharing," says Bodnar. Let your teen choose the event that is most important to him. If he wants to go to soccer camp, then don't pay for a wrestling clinic, too. For proms and homecoming dances, Bodnar gives up to $100 toward the cost of a dress or tux rental, but items like flowers and limos are her kids' responsibility.
Money-Smart Strategies: Periodically remind her to start saving for upcoming events and help her calculate how much she'll need to squirrel away each month. Otherwise "your teen won't be thinking about what she owes until the day payment is due," says Godfrey. For something like prom, where costs can quickly spiral out of control, keep your teen focused on the meaning of the event, rather than the materialism. Then reassure her that you'll do everything you can to make these experiences possible — and memorable — but at a price tag you both can afford.
Kids usually need a nudge before they'll start socking away those dollars. Financial experts Jayne A. Pearl and Janet Bodnar offer easy-to-do money-saving advice.
- Create goals and guidelines. It's easier to save for something concrete, like an electric guitar or the first college tuition payment, than for something abstract like "the future." Calculate how much he can afford to put away each week, and how much he'll have after a month, six months, one year, etc.
- Provide incentives. Create a matching program where you give a dollar, 50 cents — or any amount you can afford — for every dollar she saves. Another option is to offer to contribute a certain amount to her bank account if she reaches an agreed-upon sum by a specified date.
- Defray costs. For birthdays and holidays, give them gift cards to their favorite stores, coffee shops, and movie theaters, so they don't always have to use pocket money.
- Make allowance tougher to access. Consider paying an older teen's allowance by check or deposit in a bank account. Kids are less likely to spend it all if they have to withdraw it first.
- Encourage awareness. By eliminating just one weekly $6 fast-food outing with friends, your teen will be able to save up enough in one year to splurge on some "can't live without" item, like an iPod.
- Help your child learn to delay gratification. Bonus lesson: After seeing how long it can take to save up for something pricey, he may realize he really didn't want it as much as he thought.