Money Management For Teenagers

Most teenagers are interested to learn that if they save a dollar a day, they’ll have saved more than $2,000 at the end of five years (assuming they’re putting it away in a savings account with a modest interest rate of five percent). But few realize they can earn a fortune during their working life, even if the job they take after high school isn’t “high income.” The truth is, kids who are taught good financial habits and learn to invest wisely are virtually guaranteed a solid future.

Here are five strategies that will help you teach your kids how to conserve cash:

Step 1: Calculate Earnings

Educate your teen about the difference between the rate of pay and “take-home” pay and how deductions affect actual income.

Step 2: Develop a Spending Plan

After take-home income has been calculated, a budget or spending plan should be established. Then have your teen write down all the things she needs (transportation, school supplies) and the things she wants (clothes, car) over the next five years. After the list is completed, help her put a price tag on the items listed. Then, try to put a timetable next to each item. Try to decide how she will pay for everything. Help her to write down a rough salary for the next five years. Now compare the estimated income with the estimated expenses.

Step 3: Include a Savings Plan

What’s your saving objective? Introduce your teen to the “pay yourself first” concept. Encourage him to “pay himself first” by putting a portion of his check into savings each month. This money isn’t for routine expenses or special purchases, rather it’s money to meet his goals.

Step 4: Be Creative

Think of games to making saving seem fun. For example, set various savings goals with rewards given as each level is achieved. Have a contest between family members to see who can save the most, with a prize going to the winner.

Step 5: Explore the Financial World Together

Read the business section of the newspaper together with your teen. Have her pick a stock or a mutual fund and track it on the Internet for several months. Place an imaginary amount of money on the stock and see how it grows (or doesn’t) in the following months. Explore the real costs of investing (broker’s fees, etc.) with her.

What do teens know about money?

A recent survey asked more than 1,200 American teens about their financial hopes, fears, dreams and knowledge. Most kids (72 percent) said they learned about money matters from their parents; 83 percent of these said they were satisfied with their parents’ advice; and 79 percent said they planned to handle their finances the way their parents do.

That’s fine if they’re learning well. But the survey also showed that many kids don’t understand some basic financial concepts. Eighty-eight percent of teens didn’t understand the term “compound interest” and 85 percent didn’t understand the term “mutual fund.” Forty-two percent didn’t know what “life insurance” was and 48 percent didn’t understand the role of Social Security payments.

The survey did show, however that the majority of teens could be described as members of “a responsible, realistic generation.” Eighty-nine percent of them agreed that young people their age should save for the future, and 78 percent of them have a savings account.

Some insurance companies and banks have begun devising programs to help teens learn to manage money. Check with your local provider or bank for more information. Many banks provide information on such topics as budgeting, financing, and assessment that can be helpful to both parents and children.