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  • Geoff MacGillivray

Raising Financially literate teens

The Generation Gap

Teens are burning though about $100 per week on average, and modern teens also have something mom and dad never had: credit cards to make online purchases with. As they spend, it raises difficult questions for parents who know their children will one day hav to face financial reality and pay their own way in the world.

What should you do?

Here is a suggestion, encourage your teens to see money in a broader context, introduce them to ideas like saving, investing and the compounding effect. Show them how to balance todays desires against tomorrows needs. At times, they may log at you like you are from another planet. They don’t know about shared accommodation at university, sacrificing consumer purchases to pay rent, or dining on a 80 cent pack of noodles. In short they are not you. They are living the dream that you have worked hard to attain. But with some time from this guide, you can get them started on the path to attain their own dreams.

Start with a budget

Everyone talks about budgets but few people actually do them. To get your teen started have them start a basic budget.

They are more interested than you think

Teenagers are ready to move beyond “I need $100 to buy something.” In fact polls show that they are very interested in personal financial and the vast majority look to their parents for help.

There are a number of things you can do today to engage your teens. Why not start by including them in discussions about family finances? If you. Have set up a savings plan for their education, show them the statement and explain how the plan has grown involve. Or, when you receive a mortgage statement discuss payments, interest and principal. And take some time to explain how your mortgage and other mundane expenses fit into the family’s financial plan.

Believe it: teens want help

More than 80% of teenagers learn to manage money from their parents. Less thank half learn it from school and 65% say they learn it from real-life experience

Parents 82%

Real-life Experience 65%

School 49%

Stop treating them like babies

Marketing experts believe the young people are not acting their age; there are acting and spending older. So start their financial education by giving them around $15 a week when they turn 12, and let them learn by trial and error. But when they turn 13, it’s time to get serious by increasing both the amount they receive and what they must pay for.

More cash, bigger decisions

By the time your teens turn 16, they should know that they will have to save and budget for bigger things they want. Increase their financial independence by giving them enough to cover things like clothing at the start of the school year, but make it clear they won’t be getting any more. When they turn 17, add more responsibility.

  1. Deposit their allowances in a bank account every month and true them with a bank card

  2. They will be targeted by credit card companies at college, so consider getting your children jointly held credit cards with a $500 limit so they can learn to manage credit

  3. Coach them to make the right financial decisions by going over month end credit card and banking statements, showing them how rapidly debts can add up.

  4. Emphasize the importance of saving by stressing the cost of higher education and how much they will be responsible for.

  5. Setting aside money for a good cause is also an important lesson to teach. Encourage your teens to research the work of a major charity and then donate part of their allowance to it.

Investing: how to get started

Did you know that 35% of teens earn more than $2500 per year? Starting an investing plan with your teen can be a great way to get them on the right path financially. The best way to learn about investing is to do it. Open an investment account with your teens and. Match every dollar they invest with one of your own. Let them experiment with a mock portfolio of several stocks and follow their performance. Create a family investment club to come up with new investment ideas. There are a number of stock investing games on the internet that off an entertaining introductions to investing.

The plastic trap

If there is one thing that sets todays teens apart from previous generations, its their use of credit cards. College students on average have at least one credit card carrying a $3,000 debt, and companies are eager for young people to stat borrowing with cards jointly held with their parents. So before the debt starts mounting, its important to discuss credit card management with your teens. Give your teens a head start by selecting a credit card with a very low limit. Then go over the monthly statements with them so they understand interest rates and the consequences of carrying a balance.

  1. Have them prepay the card with money from allowances or jobs. This will help them realize it's their own money they are spending. You can also teach the fear the credit card trap by going online with hem and using a debt calculator to see how quickly the balance grows when only the minimum is paid.

  2. To help teens understand the connection between cash and credit and how one affects the other, make sure they are the ones paying the monthly balance

  3. Don't bail your teens out. If they get over extended, pay it, but deduct the amount from any future money you will be giving them. It's better to help them take the responsibility for a $1,000 debt now than $10,000 later.

To what end

Part of being a teenage is falling into the usual teen traps and figuring your way out of them.

But let's face it, thrift is not the dominant cultural value in north America. People are encouraged by advertising to live for today. Buy more stuff. Accept only the best. And dont worry about the debt. As a teen, the make believe world created by advertisers seems perfectly reasonable.

As a parent, you will be going against the cultural grain when you attempt to review the realities of saving and spending with your teens. But, with some honest discussion, perhaps you will help them stay out of the debt trap and move in the right direction of their own dreams.


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