Teaching teens how to manage their money can be challenging. But if you teach them the difference between needs and wants, how to save for the things they want and how to budget, they will have the skills they need to manage money well after they leave home.
Tips for teaching teens to manage money wisely
- Share the family budget. This will help your teen learn about real-world costs. You can manage your child’s expectations so that they are in line with your family’s financial reality.
- For concrete examples of budgeting, bring your teen grocery shopping with you, or set a budget with them before you go shopping for back-to-school needs.
- Try out budgeting. Have your teens create a budget of their own. Teach them how to keep track of what they receive or earn and what they spend it on. They should be able to keep their spending within their income and budget for expenses.
- For example, if your children spend too much on clothing beyond their needs and do not have enough money left over to go to a movie, then they may learn an important lesson about the value of budgeting and the importance of planning their spending.
- Define savings goals. Encourage your teens to set savings goals and create a plan to save for the things they want, such as post-secondary education. For each goal, your teens should be able to identify:
- what they are saving for
- how much money they must save to get there
- how long it will take to reach their savings goal.
- Do your homework. Encourage your teens to shop around and compare prices so they get the best value for their money.
- For example, the cheapest monthly cell phone plan may not provide the best value if they would regularly exceed the number of text messages included and run up extra charges. Help your children to compare both features and costs to confirm that the plan meets the needs and fits within the budget.
- Set clear expectations. Do you expect your children to pay for certain expenses? If so, which ones? For example, you may be willing to pay for things they need such as winter boots, but expect your children to pay for things they want such as video games, magazines and cell phones.
- Visit The City. Your teens can try fun, hands-on activities in The City: A Financial Life Skills Resource on topics such as needs versus wants, budgeting and goal-setting. The City helps prepare secondary school students for the financial issues they will face when they leave school.
If you give your teen an allowance
- Consider raising the amount gradually. At the same time, let your teens take on more responsibility for managing the money you would normally spend on their needs and wants, such as gifts, clothes, school lunches and outings. Your children will get a sense of how budgeting works.
- Pick a “payday.” Use the allowance to reflect how people generally receive money in the real world.
- For example, pay your teens every two weeks or monthly. Your children will have to manage more money over a longer period. This can help them learn to plan, make choices and live with the consequences.
- Set ground rules about borrowing. If your teens have an unexpected expense and ask to borrow more money before their next allowance, take the opportunity to talk about credit, loans and interest.
- You may even consider charging a small amount of interest. This could help your children understand the basics of credit and the fact that it usually costs money to borrow money.
- Get credit for giving to charity. Explain that, in addition to giving back to the community, charitable donations receive a tax credit.
- When your teens’ annual income is high enough for them to pay income tax, charitable donations can reduce the amount they pay.