7 ways to teach your teens about money

If there’s one thing all teens know about money, it’s how to spend it. But beyond that, many teens are lacking in the basic skills needed to keep their bank accounts healthy. Here are seven ways to teach your teens the financial skills they’ll need to survive as adults:

Say ‘no’

There’s a reason there are joke t-shirts bearing slogans like ‘Bank of Dad’: parents are often viewed as an endless source of money by teens. The first step to leading your teens towards fiscal responsibility? Close the bank. If you kids run out of money, don’t rescue them; they need to learn the hard way, before they have a mortgage and kids of their own, how to spend responsibly.

Having said that, there is nothing wrong with funding things like athletic, artistic or scholastic pursuits that a teen would never be able to afford on their own. Just make sure there is financial input from your teen: You pay for lessons, for example, while he maintains his own equipment. Or you agree to match the amount of money she saves for university. Which leads to…

Get a job

The easiest way to teach teens the value of money is to help them earn their own. Getting a job is a rite of passage for teenagers, and while the minimum age for employment varies from province to province as well as by type of work, a 16-year-old should have no trouble getting a job in retail or at a restaurant. The bonus benefit: Working menial jobs will generally encourage teens to stay in school.

When presented with a paycheque, some teens may have problems connecting the amount of money they earned with the time it took to earn it. Squash overspending by pointing out that each hour your son worked only earned him $9; if he blows his $200 paycheque on a gaming console, it cost him 20 hours of his time to pay for it. Once teens internalize this connection, they’ll be less likely to spend every penny they earn.

Get a bank account

When a teen gets a job, a teen needs a bank account. Learning the basics of banking is crucial to having a healthy account later in life.

Go with your teen to set up a bank account, and provide guidance on the right account. Make sure the following is clear:

• banking fees, especially if the debit card is a first
• the dangers of identity theft from debit cards and automated banking

It is also a good idea to put caps on how much money can be withdrawn daily, weekly and monthly, to train your teen to budget his spending.

Your teen will likely need a chequing account (for automatic deposits from work) and a savings account. Work with your teen to develop a set savings plan; whether it is a certain amount per month or a certain percentage of each paycheque, the important thing is to create the habit of ‘paying’ oneself first. To make it painless, many banks offer automatic transfer services that will, on a certain date or with each deposit, transfer a pre-determined amount from one account to another.

Examine spending habits

We all know the adult version of this theory: You get a $5 coffee at Starbucks every day. That’s $25 per week, $100 a month, $1200 a year.  Cutting down to one coffee a week saves you about $950 a year, which is a lot of money to spend on something else.

The same thing goes with teens: One of the biggest perks of high school (at least as far as I can remember) was being able to go off the school grounds for lunch; daily lunch can add up as fast as a coffee habit. Another teen trap? Movies. Before she rushes out to see the newest Twilight movie seven times in a row, sit your teen down and help her do the math. And if she really must see said movie seven times, do the teen version of switching to Tim’s: Matinees tend to be cheaper than movies at night, and certain theatres offer lower admission than others.

Two words: Compound interest

I can still remember the day in math class when we learned about compound interest; by no means a genius with numbers, even I could grasp the concept of making money by saving money, and it was exciting.

If your teen proves adept at handing her own banking affairs, introduce her to high-interest savings accounts, GICs, RRSPs and the stock market. A good place to start? Get a tax-free savings account: The interest she makes is all hers, and she can’t lose her original investment.

Life and debt

Debt is the ugly side of personal finance, and even if you personally have never struggled with it, it’s a topic your teen needs to hear about, especially as he approaches his first credit card.  The important lesson: Always pay off the whole balance.

A credit card is not free money, but rather borrowed money that must be repaid. If your teen only pays the minimum payment each month, the credit company charges him ‘interest’ on the rest of the money, which can vary from card to card but usually sits around 20%. Some companies charge interest from the day customers purchase that new pair of shoes; others charge interest based on the balance at the end of the month.

And no matter what the details, paying only the minimum balance can land your teen in major debt, especially if it becomes a habit. Read almost any debtor’s tale of woe and it will start with ‘I would pay only the minimum balance…’

Show them the money

One of the easiest ways to introduce teenagers to financial planning is to include them in your financial planning. Many teenagers have no idea how much it costs to live, as everything is provided for them. To make it worse, parents don’t always discuss finances with their children, especially in recessionary times. Every teenager should know how much her family earns in a year, and start learning how much it costs to live.

Start small, by bringing your younger teen grocery shopping, to show her how much food costs. As your teen gets older, start including her when you’re paying your monthly bills, so she learns how much her hi-speed internet costs. When she starts nagging for her own car, show how much it costs for you to own and drive a single car. As she approaches university age, show your teen how much you pay a month in utilities and mortgage, so she has a rough idea of how much it costs to live on her own.

When to comes to learning about money, it’s easy for a teen to get overwhelmed. As each teen is different, you might find one of your teens catching on while the other is struggling; this is normal. By starting kids off with healthy money habits, you'll give them a head start in the financial world.  And when the next recession hits, you’ll have given them the skills to float while others flounder.

Need to brush up on your own financial skills? Recession-proof your finances, confess your personal finance sins, and do the math on how you spend your cash.

This article is original content on More.ca