Experts believe that our lifetime relationship with money is mainly formed when we are children. It’s not simply a case of whether our parents had enough money when we were growing up, or not. It’s more a case of how they dealt with money matters, if money was discussed, and whether money caused stress beyond the fact that few families ever have as much money as they would like.
Fortunately, by taking a proactive approach and teaching teenagers about money, it is possible to help them develop a better relationship with it and avoid some of the mistake we have made. Here are a few things you can do to achieve this:
1. Set a good example
Teenagers can smell hypocrisy from one hundred metres. If you want to help them become good with money, lead by example. Explain to them how you budget each month and involve them when you need to make tough spending decisions. If your teenage children think you buy whatever you want, whenever you want, they are less likely to appreciate that money is scarce for you. So, explain why you have, or have not, made a purchase and, if you are saving to buy something, talk them through the process and let them see how your savings are progressing. If they realise you must wait to buy something, it’ll reinforce the importance of saving and begin to instil the concept of delayed gratification.
Also, be honest with them about money. An open and honest relationship with money, plus an ability to talk about it, are both incredibly important if you want them to be good with money.
2. Give them financial responsibility
Getting your teenager their own bank account is a key step in them developing a good relationship with money. It helps them have a clear picture of how much money they have, and make money more ‘real,’ rather than it magically appearing when they need or want something.
Your teenage children having their own bank account will also enable them to learn how to budget, as they will be able to see how much money they have in their account and work out how it will be impacted by spending decisions they might make.
Also, regardless of your family’s financial situation, make your teenagers earn money, rather than just receiving it in the form of pocket money or an allowance. Whether they wait tables, clean out stables or do paid chores around the house, earning money helps put the cost of things into context. When they realise that a ticket to a pop concert will cost what they earn from two days’ work, they will start to understand the value of money and how we must all constantly decide whether what we want to spend is worth the effort it takes to earn it.
Giving them financial responsibility should also allow them to make some bad choices with their money. As much as our parenting instinct is to protect our children and sort out their problems, when it comes to money it is important that they learn the consequences of bad financial decisions. So, the next time your teenager decides they wants to spend all their money on a pair of €150 training shoes, let them make their own decision. When they subsequently find they don’t have any money to go out, or buy something they genuinely need, calmly point out that it was their money choice that created the situation, and encourage them to think more carefully next time.
3. Reinforce the concept of saving
Saving is important as it enables us to build up a financial buffer to deal with the unexpected and buy things in the future which we cannot afford now. However, when you are a teenager, the future can seem a long way away, and delayed gratification is an alien concept for many!
To encourage your teenage children to save, discuss what they could save for – a holiday with friends or their first car, for example - and encourage them to put a proportion of their allowance or income into savings each month to reach their savings goal. Saving becomes easier when it becomes a habit and you have a savings goal, so helping them develop the saving habit early and have a goal in sight can put in place a practice that will serve them well in life.
To encourage them further, you might also want to provide them with an incentive to save – such as adding a cash bonus to their savings when they reach a specific target or matching whatever they save each month. This can help reinforce the point that saving money has financial advantages.
4. Differentiate “needs” and “wants”
Understanding the difference between what we need to spend our money on (essential spending) and what we want to spend money on (our discretionary spending) are fundamental building blocks when learning about money.
As adults, it can often be easy to tell the difference. For example, paying your rent, or mortgage, is essential otherwise you will end up homeless, whereas dinner at a restaurant might be nice, but it’s not essential.
However, with teenage children it’s not quite so simple. This is partly because parents usually make a lot of essential spending on their behalf, but also because teenagers’ have different ideas as to what is essential. They can also be influenced by peer pressure and the desire to “fit in”, which can make a “want” seem very much like a “need”. Take smartphones, for instance. It can be argued that a smartphone has become a “need” in modern life. They enable us to be contacted, check emails, use the internet, do our banking, and a whole range of useful things. However, when the request is for the latest €1,000 smartphone, rather than an older, cheaper model, then that “need” becomes a “want”.
The fact that there is a potential blurring between the two for teenagers can make for some tricky conversations. So, take time to discuss your children’s request and try to avoid them feeling that you don’t care about their “needs” or “wants.” If you can’t agree to their request, explain why in an honest and open way. If there is a way to compromise, by them funding the difference between your offer and what they want, then do so by tying it into the concept of saving, as mentioned above. This approach is a great opportunity for them to learn the value of money, as the latest smartphone may seem less appealing if it means they don’t have money to buy or do all the other things they want to do, or have to save in order to get it.
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