Raising Money-Wise Teens

by Alan Lavine and Gail Liberman

Want your children to learn more about money? The first step is to set a good example with your own finances. Then, you can be in a position to show your children what to do, suggests Janet Bodnar, author of Kiplinger’s “Raising Money Smart Kids (Dearborn).”

Unfortunately, our schools don’t do a good enough job on the subject. Only 19 percent of high school students almost always felt confident about making financial decisions, according to a study by the National Endowment of Financial Education (NEFE). Just 9 percent said they almost always set financial goals.

What should you do? Keep your fingers crossed, and take Bodnar’s advice.

She suggests teaching kids how to develop a spending plan that includes the following:

• Keeping a record of expenses. Show them that they need to write down everything they spend money on for one month. At least they will be conscious of how much they truly pay for everything.

• Teens should learn to set goals. Does Horace want a DVD player? Have him save for it. But Horace shouldn’t keep the goal in his head. He needs to write it down on a list, and determine a plan to achieve the objective.

Written goals should be easy to understand and achieve. As a rule of thumb, Bodnar suggests that teens spend 70 percent of their money and save the rest. Help your children set up a list and decide what is important and realistic, Bodnar says. The list will help you and your children determine what is wanted and what it costs. By going down this list together, you can decipher difference between their actual needs and wants. For example, your teen may need transportation to school, but he or she may want a new car.  

You can both work out the most cost-effective solution.

The author also serves up some handy advice about five things 16 year-olds need to know. For example:

• They should pay for their own gasoline and clothes out of separate allowances for gas and clothes. If they feel they need more, they can earn extra money to buy it.

• They should have a reasonable idea of your family’s finances. They should have realistic expectations for college, and how much parents can afford.

• They should know how to write a check and balance a checking account.

• They should save one-half of everything they earn from a job for major high school expenses, such as a class ring or class trip.

• They should not get everything they request.

How much allowance should you give children?

Bodnar suggests starting with a weekly base allowance equal to half a child’s age. Thus, a six-year-old would earn $3 a week and a 10-year-old, $5. You might adjust this figure based on an area’s cost of living.

A vast majority of parents, Bodnar notes, give children extra money for things like trips to the mall and movies, in addition to an allowance. This, Bodnar contends, defeats the purpose of an allowance. For older children, such expenses should be built into the financial responsibilities that come with the allowance. Kids need to decide how to parcel out their money, she says.

Does your child complain that he or she needs more cash? Make your child earn any raise by showing you written documentation of income and expenses.

“I need it,” is not an adequate reason.

Once you see hard numbers, you both can review whether a raise truly is merited.

Alan Lavine and Gail Liberman are husband-wife personal finance columnists, journalists and authors. They are the authors of "Rags To Retirement," published by Alpha Books. Their columns appear in newspapers throughout New England and the Southeast, as well as online. Their commentary on mutual funds and personal finance is carried by 200 radio stations nationwide every Sunday over Business News Network's Charles DeRose Financial Advisor Show. Al and Gail’s new book is "Rags To Retirement:  Stories from people who retired well on much less than you think," published by Alpha Books.

More articles by Al and Gail can be found here.