A friend told me about the day her son Brandon bounded into the kitchen with an announcement: "I want a Ford Mustang when I get my driver's license!"
Instead of lecturing him, his mother asked him to find the Mustang he was interested in. Together, they calculated the monthly payments on a car loan, as well as the cost of taxes, insurance and gas. Then they calculated how many hours a month he would need to work to own and operate the car.
Brandon was shocked to discover he would need to work nearly 80 hours a month. So he gave up his dream of owning a Mustang and was fine with simply borrowing the family car. Like Brandon, many teens don't grasp the reality of money matters. But as parents, we can prepare them for life on their own by teaching them financial fitness.
A strong work ethic
Teaching your teens how to work hard and complete tasks on time will give them a skill set that directly affects their finances. For example, a teen who knows the value of working toward a goal is more likely to get better grades in school, receive college scholarships and be more successful in her career.
One way to develop this work ethic is through regular chores. Teens can help with yard work, housework and even special projects for a little extra cash. If you have a teen who is skilled in technology, then part of his chores might be coaching you on the use of a new social media app.
When our kids were teens, my husband and I had occasional struggles with their bouts of laziness. We let the guilty party know our expectations whenever this occurred. In one instance, our son regularly left for school without making his bed. We "hired" his sister to make his bed each morning. When allowance day rolled around, we paid this son his weekly stipend and then reminded him that since his sister had made his bed, he needed to pay her. To his dismay (and her delight), he had to give her half of his allowance. He never left the house with an unmade bed again.
Teens can develop a budget if we help them establish one based on their allowance and their clothing and school-supply stipends. If you give your teen $100 per semester to spend on clothing, for instance, you can teach her to stretch those dollars by scouring a store's clearance racks. In our family, our teens were given a set amount, and we let them keep what they did not spend, which motivated them to not only stay within budget, but also come in under budget.
When giving kids an allowance, be sure you teach them to save a portion, give a portion and wisely spend the balance. Learning to spend less than they have can be a fun challenge with a lucrative reward.
One of the ways to get teens interested in saving money is to teach them savings hacks — easy ways to avoid unnecessary expenses. Eating out is a great venue for teaching this. For example, let your teen know that ordering lunch in a restaurant can be cheaper than ordering from the dinner menu. Also, ordering water instead of a soda saves money and is a healthier option.
Get your teen involved in cooking at home to help him see the cost of making versus buying a meal. Not only are you teaching kids the value of saving money, but you're helping them learn to cook on their own, which will prepare them for life.
The power of patience
Our kids often asked to borrow money to buy something they wanted. We turned those opportunities into teachable moments about debt and gave them another option. We explained debt and interest and talked about saving for the item they wanted. Then we offered them an expedited means of reaching their goal through a unique family savings plan.
We called our savings plan the "Family 401K." When they wanted a larger ticket item such as a bike, iPod or video game, we told our kids they could save for it. For every dollar they earned, we would match it (up to a set amount). They took better care of those items because they went through the work of saving for them, and they learned to be grateful for them, as well.
As the mom of enough kids to make up a basketball team, I can say from experience that there is hope for teaching teens to be financially savvy. They really can learn to make wise money choices during their remaining years at home and when they live on their own.Ellie Kay is a financial expert, author and speaker.