Every teenager in the free world seems to think when it comes to spending, they have the deepest pockets in the world – their parents pockets!
With parents footing the bill, a teen’s list of needs can grow to astounding proportions. When the same list has to come out of the teen’s own finances, it can dwindle down quickly. Teenager Michael Stahl, dad Scott Lorenz and financial expert Janet Bodnar have teamed up to help give you the best advice when it comes to developing your teenager’s spending smarts.
“If you’re spending your parents money, I think you don’t realize the value of a dollar, but if it’s your money it makes you think a little bit more,” says 17-year-old Michael Stahl.
Take an active role
Whether you realize it or not, you have already taught your teenager lessons about money, spending, budgeting and saving. Through your buying behavior, savings and investment plans — or lack of them, you are sending a message to your teen.
Help your message on finances be a positive one, by taking an active role in teaching your teen the importance of developing smart spending habits. Even if you have bad credit and your savings account balance is zero, you can still teach your child the right way to handle money and control spending.
By openly discussing your poor habits and explaining what problems you have had as a result of them, you can help your teen learn by your example.
“Look on it as an opportunity,” suggests Janet Bodnar. “It teaches your kids a valuable lesson.” Bodnar is the author of the syndicated column, Dr. Tightwad, and mother to three teenagers.
Teach them the alternative to spending – earning interest and dividends!
How do you discourage your teen from spending $80 on a new pair of jeans or $120 on shoes? Stahl believes teens need to learn the earning potential of money. He began investing money when he was in the fourth grade when he received $100 as a gift.
“I decided to invest in Atari,” said Stahl. He bought 100 shares at a $1 each. Within three months, his investment was worth $500. He sold his 100 shares for a $400 profit.
“That kind of got me hooked,” he said. To help teenagers learn the value of investing rather than spending, Stahl wrote the book, “Early to Rise: A Young Person’s Guide to Investing…and Financial Decisions that Can Shape Your Life.”
“Show what the money they earn can do for them,” suggests Stahl. “What that $80 can really become. No one can beat a teenager when it comes to the miracle of compounding interest.”
While many parents want to limit or restrict a teen’s spending, Stahl emphasizes teens need to be teens too.
“Save as much as you can, but you still have to be a kid and go out and have a good time,” says Stahl. “You can’t save it all. You have to have a good time.”
If your teen has a part-time job, Bodnar suggest you and your teen decide what percentage be put in savings before the first paycheck ever arrives.
When deciding how much money to save, consider your teen’s weekly expenses. You want to leave your teen enough to cover their weekly expenses. Anything above the normal requirements should be placed into some sort of savings.
“You don’t want them to be totally awash in cash,” said Bodnar.
Enlist the aid of the Internet!
One of the best ways to tame a teen’s spending spree is by encouraging them to put their computer skills to work searching the Internet for the best value for their spending dollar.
“I am no expert, just a parent,” said Scott Lorenz of Michigan, “but one thing I have been doing lately is encouraging my teens to research their purchases.
“We did this with sneakers a few months ago,” said Lorenz. “My son wanted Nike and I showed him an ad for New Balance. He was hooked on the Nike brand name for no other reason than he heard about it, his friends wore them, etc.
Lorenz encouraged his son, 13, to research alternatives and encouraged him to do comparison shopping on the Internet.
“My son also wants to purchase an MP3 device and is ready to spend $200,” said Lorenz. “Again, I am trying to teach him to slow down, do the research on the Internet and make an intelligent decision.
“My son found out he could get nearly the same MP3 for only $50 if he spent this amount for e-music from this particular Web site. He was pretty surprised and I was a little smug,” Lorenz said. “It showed him that there are other deals out there and the payoff comes with research.”
That’s Life
In her book, Kiplinger’s Dollars & Sense for Kids, Bodnar suggests one way to teach teens money is a limited resource is by doing some role-playing. Assume the teenager is living on her own and has to pay normal expenses. Have them suggest a monthly income they feel would be enough to live on comfortably.
Discuss how much rent, car payments, insurance, groceries and utilities cost each month. As you subtract out the various items from the monthly income, it gives the teen a clearer picture of how much money if available for spending.
“They really don’t have a grasp of the real world,” Bodnar said. “ I think, ‘That’s Life’ is a good game to play with your kids.”
You can use play money to illustrate this, or you can use yourself and your family as a real world example. Next time you cash your paycheck, get the full amount in cash.
Sit down with your teen and talk about the difference between gross and net income. Discuss what bills have to be paid. As you mention a bill, take it away from the pile of money.
“Just start peeling,” Bodnar said. “It doesn’t have to be complicated. You just need to keep things simple.”
SIDEBAR:
High tech alternatives to teach your teen Spending Smarts
By Linda Sherwood
A new Discover card commercial shows a parent handing their child a credit card to use “for emergencies only.” The next 30 seconds show the teen defining “emergency” in a number of unique ways including buying pizza, a new wardrobe and items for his friends. The commercial ends with the father holding a credit card statement looking like he is going to kill his child.
The commercial is funny until it happens to you and your child.
In an effort to teach teens about financing, some parents have turned to high tech alternatives including credit cards, debit cards and checking accounts. Does a teen need a credit card or a checking account? Does it help them learn about money?
“I don’t think kids that age have any business spending on credit,” said Janet Bodnar, senior editor of Kiplinger’s Personal Finance Magazine and author of Kiplinger’s Dollars & Sense for Kids.
“While there’s something to be said for real-world experiences – and lots to be said for teaching teens about credit – there’s no need to turn teenagers into debtors-in-training,” says Bodnar in her book. “Far better to make them pay as they go, with cash that they earn or receive in a fixed amount as an allowance. If they learn to manage money while they’re at home, they’ll be less likely to go crazy with credit when they’re off at college.”
Bodnar does recommend opening a checking account for your teen. A checking account can help a teen learn to become a good cash manager, Bodnar says. It can help them see what they are spending.
If you’d rather not open an actual checking account, you can still teach your kids the basics of checking with a program like ParentBanc. Available in retail stores or by calling 1-800-471-3000, ParentBanc kits include a checkbook, register and deposit slips. Additional checks can be ordered personalized in the child’s name.
There are other high tech options available on the Internet.
HEYnetwork.com, www.HEYnetwork.com, offers Kids-ecommerce to help children and teens learn about money management. Parents can create and approve spending through a Family Electronic Wallet system. Parents can set up an account for their teens and limit what the money in the account can be spent on.
Another option is the PocketCard, www.pocketcard.com, a supervised VISA card that offers real-time funding, spending and reporting for families. PocketCard can provide teens with early training in credit cards. Parents can find out what and where teens are spending on a daily basis rather than waiting for the monthly bill when it may be too late.
The PocketCard system allows parents to add money to the card instantly via the Internet or a touchtone phone. Parents can monitor where the money is spent by logging onto the PocketCard Web site, through daily e-mail updates or by monthly statements. Teens can make purchases online or offline anywhere VISA is accepted.
