Tips For Teaching Teens Money Management.

A soda here, a magazine there and then a new pair of jeans at the mall. Tweens and teens have money from summer jobs and retailers are ready!

But, what if you could help your teen to end up with money left in their piggy bank at the end of the summer – and teach them the important skill of money management at the same time? Here are tips:

Make a Savings Plan. Track Progress.

Does your teen have her eye on a big purchase? Maybe an iPad? Have them make an explicit savings plan that includes how much she’ll save each week (like 50% of her allowance and an extra $10 from weekend babysitting) and how long it will take to reach the goal if she stays on track. Review progress along the way.

Make a Family Loan

Instead of giving a big ticket item like a laptop to your teen outright, consider setting up a long term loan with payments each week coming from a percentage of his income. This can be an excellent way to teach the value of a dollar. Kids tend to take better care of things their still paying for week in and week out as well.

Pay Back Big Mistakes in Installments

Has your teen driver just received that first ticket? First fender bender? Huge phone overage charge? Your teen may not have the money to pay off a big transgression right away, but if you pay for it, keep track of the amount and have your teen pay you back in installments over time.

Share Hidden Costs

Teens often don’t appreciate all of the hidden costs in life. If your teen is benefiting from a shared service (like a cell phone family plan), consider holding him responsible for some or all of his share or extras (like overage charges or replacement insurance).

Make a Budget. Spend Within It

Take some area of spending that you are already handling on behalf of your child – like clothing – and (1) have your child propose a budget and then refine it as necessary (2) give your child a spending allowance equal to the budget (3) turn the spending decisions over to your child. You may have to veto an occasional purchase, but try to stay out of the way in general. (4) require that your child stay within budget and deal with the consequences of the inevitable bad purchase decision

Create Incentives for Saving and Giving

To encourage your kids to save and give more, award interest and/or match their deposits in non-spending accounts within the Bank of Mom & Dad. Since you’re the bank owner, you can make the rates or matching contributions as generous as you like to drive the point home. Teach them the power of compound interest.

Split Between Spending, Saving and Giving

Create a healthy balance between spending, saving/investing and giving. Work out an agreement for how income will be split between these different areas and direct the funds into separate accounts in the Bank of Mam & Dad as soon as it comes in.

Hold a Monthly Money Meeting

Review a “bank statement”, savings goals, and budgets with your child regularly as a way to maintain an ongoing, practical dialog about personal finance.

Set up a “Family 401(k)”

Your teen just landed that first summer or part time job. Congratulations!! Now’s the time for your teen to start thinking about…wait for it…retirement! Seriously? Yep, and you can help with one of my all-time favorite family finance tips for parents with teens: the Family 401(k). So what is a Family 401(k)? It’s where the parents (or grandparents, or rich aunt, or some combo) agree to make contributions to a teen’s Roth IRA. They match some percentage of the teen’s earned income — typically from a summer or part-time job. It’s like the concept of a real 401(k) where a company makes matching contributions to a retirement account, but in this case it’s the supporting family members making contributions. The teens often don’t make any actual contributions themselves — at least not at first.

Help Your Tween Establish Their Own Income

Tweens will learn a lot more by spending their limited funds instead of your seemingly limitless supply. They’ll learn to weigh trade-offs, make choices, save patiently, and deal with the consequences of their inevitable mistakes. They’ll learn to live within their means, not yours. So where should your child get this income? That’s up to you and what makes sense for your family, but here are some options to consider: regular allowance, birthday money, payments for completed chores, compensation from outside jobs or even earnings from a micro-business (anything from the classic lemonade stand to an online store for selling TShirts with hand-drawn illustrations using a site like CafePress).

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This article is written by guest writer Bill Dwight. Bill is the creator of FamZoo,  a California-based company that provides families with a comprehensive online tool that help parents teach money management skills to kids. To learn more about FamZoo, visit their website

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