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The following is a guest post by Michael German. Enjoy!
The teenage years often are both the most traumatic and most enjoyable years of one’s life. Psychologists often chalk it up to a less developed sense of long-term thinking, mixed with a wonderful feeling of invincibility.
A teen’s limited experience in the world leaves them with the impression that the world is just a long road of possibilities lying out before them; they’ve yet to meet any of the wolves often hiding in the trees along that road. Even life’s tragedies can often be soothed with a cute date and a new pair of Nikes. But, Nikes and sometimes dates are also expensive as well as being enjoyable.
Teaching Your Children a Balance Between Wants and Fiscal Responsibility
There is an age-old argument between parents, and sometimes a parent argues with just themselves on how to give your kid what they need, and at the same time, teach them financial responsibility. Naturally, parents want their kids to fit in and to be accepted in their peer environment.
On the OTHER hand, you know it’s fiscally responsible to tell your kid that you are not spending $150 on a pair of sneakers because some forgettable celebrity wears them on television. Yet still, you cringe at the thought of other kids teasing them at school, because they are wearing cheap sneakers. There are choices outside of becoming either the unsympathetic miser or human cash card, however. You can work alongside your teen to teach them about financial responsibility.
Of course, you will have to give them something to start with, a base pay otherwise known as an “allowance.” You’ll want to come up with an amount that feels fair to both you and your teen. Don’t just settle on what you got for an allowance as a kid; chances are prices have quadrupled since then and chances are really strong that your kid will just look at you and laugh.
Along with your teen, take an inventory of what their justifiable weekly expenses are, including lunches, carfare, entertainment costs – at least enough for a movie a week and maybe some food after the movie. Yes, you can throw in a little fun money, but not enough for those sneakers.
What Happens if Their Allowance Just Isn’t Enough?
Of course, like the adults teaching them, things pop up in a teen’s life that they just have to have that their allowances just won’t cover, at least not anytime soon. The same as adults have overtime pay, create a similar option for your teen. Household chores like cleaning out the garage, mowing the lawn, or even cleaning the kitchen and giving you a break are all opportunities to teach kids to earn the additional money they want. Plus, it gives you a break! Provide them with a way to prove that they are willing to work for what they want.
Beyond Allowances – Other Ways to Instill Financial Skills in Your Children
Involve Your Children in Household Financial Decisions
Lead by example, foremost. Let your teen sit in on your financial decisions. Show them how the cash flows in and how it flows back out. Let them see why it is that you say that a bigger screen television is not in the cards for this month. Maybe they will see the connection between raising the air conditioning enough to sleep with a blanket and life with a smaller television screen.
Pre-Paid Credit Cards
When you feel that your teen is ready to handle credit, you can obtain a prepaid credit card for them. This can be a wonderful teaching tool for your teen on how to responsibly deal with having credit; let them do the shopping through the best credit card offers and find what works best for them.
With a little work- and a lot of patience – you can nudge your teens away from a world of instant gratification into a world of financial responsibility. As the world’s economy seems an endless carousel ride of ups and downs, and will likely stay that way, your teen will be ready to ride that carousel horse. Whether the horse happens to be rising or falling.
How about you all? What methods do you feel are best to teach fiscal responsibility to children? Do you feel that giving an allowance is a good thing to do?
Share your experiences by commenting below!
Jacob’s Thoughts – Listed below are my random thoughts as I was reading this article.
- Great post topic here Michael! Thanks so much for sharing it! After all, among the vast array of personal finance topics available, I can’t think of too many more important ones than figuring out the best ways to teach children about financial management before they get themselves in to trouble.
- @ The most important gift that parents can give their children – The Gift of Want –
- As discussed in my post last year about whether or not it is good to give children an allowance, I feel that the best gift a parent can give their children is the gift of want!
- What exactly do I mean by this? Simple – if they express their desire for a certain product, trip, etc, we should encourage them to achieve their goal by going out and earning the money themselves.
- @ Giving your children an allowance –
- As I discussed in the post linked in the previous bullet, (even though the majority of people may not agree with me) I do NOT believe that giving an allowance to children is the best practice in teaching financial responsibility.
- Instead, I prefer the approach of encouraging children to earn the money for their desired larger purchases themselves, either through getting a job or creating their own small home business.
- @ Out of curiosity, what are allowances going for these days?!
- After reading the portion of this post that discusses the quantity of allowances, I became interested in just what is the “going weekly rate” for children’s allowances these days. I imagine it has increased dramatically since I was in junior high/high school, but I was very interested in seeing some figures for this!
- According to Kid’s Money.org, the average allowance for 18 year old teenagers is $40. How does this compare to when you were growing up?!
- @ Overtime pay for household chores in addition to an allowance –
- As I’ve discussed above, I’m not the biggest fan of giving children a direct allowance for merely existing and contributing to the normal household operations.
- However, if the child goes beyond what the other members of the family do to help out, I am OK with he or she being compensated for that work.
- Examples of this would include the following – 1) your family normally pays to have their hedges clipped once per year, but your daughter offers to clip them instead. Then, it’s perfectly OK to compensate them. 2) if your family normally pays $100 each week to have their dress clothes dry-cleaned, but your son offers to iron the pants and shirts. This is perfectly OK to pay the children for their work. It saves the family money all around!
- @ Other ways to give your children a financial head start in life –
- I’ve discussed several other great ways for parents to head give their children a financial head start in life in a post I wrote in February of 2010. You can read all about the methods by clicking the following link – Ways for parents to give their children a financial head start in life.
- In addition to these methods, I came up with several additional techniques when I was brainstorming my comments on this post. They are described below:
- Have your teenager track their spending for several weeks in Excel to determine spending habits, and then work with them to identify areas where they could save money.
- Set a meeting once per week to talk about finances. I feel like this is a good idea since the topic of finance, unfortunately, will not be covered in any kind of detail in any form of formal education your child receives (a sad reality of the US education system).
***Photo courtesy of http://www.flickr.com/photos/demibrooke/2571620989/sizes/l/in/photostream/