By Bob Rothe, CFP®
I have found a highly successful technique to teach kids about money. Based on my experience in working with my own kids and many years of helping families with financial planning, it is the advice I give most often to parents who are trying to teach their teenagers how to handle money. If your kids have grown beyond their teenage years, congratulations! This article may not be for you, but please feel free to forward it to someone who might find it useful.
This technique involves letting your teenagers make as many decisions as possible about the money that you spend on them. There are several steps to making the process work and they should be done in order.
- If they don’t already have one, open a checking account for your teenager.
- Without telling them the real reason you want it, ask your teenager to make a list of how much you need to spend each month for their benefit. The list should include things such as clothing, personal grooming items, school lunches, movies, snacks, video games, telephone, gifts for family members on birthdays and at Christmas, and so on. As they get older, the list can expand. If they have a car, they can add gasoline, oil changes, and perhaps even insurance and loan payments. You will probably pay the insurance yourself along with other coverages, but they can reimburse you for the portion of the premium covering their car. The list needs to be very thorough and should include anything that they might conceivably be able to pay for themselves.
- Have your teenager total the monthly amount and give you the itemized list.
- Explain to your teenager that you are making them an offer, and they can take it or leave it; it’s totally up to them. You will take the monthly total they gave you, add 10% to it, and on the first of each month, you will deposit that amount into their checking account. You are going to keep the itemized list, and from now on, you are not going to pay for anything on it. Your teenager can spend the money any way they want, but if they want to purchase something on the list, they will have to pay for it themselves. If they run out of money and they don’t have enough for their lunch at school, they can make themselves a sandwich and take their lunch. If they run out of money and need gas for their car, they will have to walk or get a ride from a friend.
I have yet to hear of any teenager who didn’t take this deal when offered to them. The results are often remarkable. A teenager who once insisted on you buying them designer clothes may start buying clothes at Walmart. A teenager who thought using coupons was a waste of time may start “clipping coupons” for nearly everything. They get to decide for themselves. If they make mistakes, they need to suffer the consequences while they are still young enough for you to oversee what is going on and offer advice.
If you wait and give your teenager their first checking account (and credit card) when they go off to college, it will probably be too late. Their habits and attitudes about money will be firmly established and without any experience in handling their own finances, the results can often be disastrous. You will not be there to observe and you may not realize they are having difficulties until they have dug themselves into a deep financial mess.
If you let your children handle their own finances as much as possible when they are as young as possible, you will have a much better chance of raising financially responsible adults who won’t still be “on your payroll” when they are in their 30s.
This discussion about a specific technique should not be considered advice for everyone. There may be situations where it is inappropriate. For specific personalized advice or to talk more about how we at Wealth Management Group can help you set your kids up for success and save for your family’s future, contact us by emailing firstname.lastname@example.org or calling (214) 644-2564.
About Wealth Management Group, LLC
Wealth Management Group, LLC (WMG) is a Registered Investment Advisor with the Securities and Exchange Commission. WMG is an independent company owned by the advisors. It is not owned by nor is it a subsidiary of any other company. Our professional staff includes four advisors that hold the CFP® (Certified Financial Planner) designation and one who is a CPA (Certified Public Accountant). They have an average industry experience of more than 15 years. WMG specializes in all aspects of wealth management, including wealth protection, wealth enhancement, wealth transfer, and charitable giving. They serve individuals and families in Collin County, the DFW metroplex, throughout Texas, and beyond. Learn more about WMG at www.wealthmanagementgroupllc.com.