Teach Your Teens Financial Responsibility

Understanding money management is critical to our everyday lives, yet it is a topic that’s often sorely neglected in high school curriculum. This means it’s up to parents to help get teens up to speed before they have to step out into the real world of credit scores, check registers and mortgages. Here are a few lessons parents can use to help educate their teens before they’re off to college to make them smart, financially responsible adults.

Encourage your teen to get a part-time job.

There’s no better way to learn about money management than actually managing your own money that you earned. Having a part-time job teaches teens to understand how paychecks work, as well as concepts like taxes, Social Security and Medicare. Part-time jobs also teach teens responsibility and how to balance their time between work and school.

Teach a healthy respect for money.

While earning their own money through a part-time job, teens will also need to know how to manage that money. Teach them to avoid exorbitant fees, like paying for multiple trips to the ATM, and how to avoid overdraft fees on their accounts.  This is also a good time to teach them to save before they spend. If they want that expensive pair of shoes, they can get them when they have saved the money to pay for them.

Build credit scores, not debt.

Building a good credit score takes time and willpower. It’s tempting to overspend with credit cards, especially to teens who aren’t used to having a lot of spending power. Advise your teens not to think of credit cards as free money, rather to use them as a means to build a good credit history. They should make small, necessary purchases like gasoline or food and pay off the balance each month. Show them that although you can pay the minimum payment on the card, over time you will pay much more for the items you purchased than they are worth.

Set goals together.

Working toward tangible goals can help teens become financially responsible. After all, it’s impossible to run a race if you don’t know where the finish line is or how to get there. The same goes for budgeting and saving. Without a clear goal in mind, it’s not possible to truly measure how well your teen is making progress toward being financially responsible. Not only is it important to set clear goals, but go back and reexamine them with your teen to see how well he or she did. Keep in mind that this is a learning process and there may be some bumps in the road. Teens should learn from them and move on.

Have a meet and greet with your financial advisor.

It’s good to get a different perspective, and a professional financial advisor can teach your teen about money in a different way than you can as a parent. As teens reach the end of their senior year, it’s a good idea to introduce them to your advisor so that they can receive a more formal education on finances and start planning their own financial futures.

Find positive reinforcement.

Some businesses and industries reward positive behavior financially. For example, being a safe driver can help save lives as well as expenses: car insurance for teens can be very expensive, but many companies offer safe driver discounts. School performance may also pay off as some companies offer discounts for good grades.

In a world full of mixed messages that simultaneously encourage instant gratification along with growing wealth, parents have a big job in educating their children on how to succeed financially. It takes patience and understanding to accomplish this. While you might not see positive results right away, know that what you teach is important and that your efforts will pay off in the long run.

by Donna M. Wood, CPA/PFS, CFP®

Wood Smith Advisors, a woman-owned Registered Investment Advisor (RIA), is a fee-only fiduciary financial services firm that partners with its clients to simplify their financial lives. We focus on women, entrepreneurs and individuals with complex financial situations, providing objective and competent advice, education and services to help them develop and build their businesses and reach their financial goals. Visit us at www.woodsmithadvisors.com.


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