Clearly, this is a different summer for many families. Teenagers who have jobs are fortunate and may turn to their parents for advice on what to do with the money they have earned. These young adults may be responsible for their own mobile phone bill, filling up the car with gas, or subscription services that their parents ask them to pay for. Others may have debit or credit cards that allow them to manage and spend their money freely. In both cases, teenagers will need to learn to handle money in a manner in which they are comfortable and that also fosters financial independence.
A good approach to handling money begins with discussing the benefits of retaining cash for emergencies, as well as opportunities. In our family, we continue to discuss the value of making good decisions (financial ones included). Having money set aside, for both known and unknown purchases, allows for choices. When no money is set aside and a purchase becomes necessary, credit cards may become the “go to” choice to solve the problem. This is dangerous for young adults and creates a bad habit where they become reliant on plastic, as well as the terms set forth in the agreement with the card issuer. Creating a habit of saving and setting aside money is not natural, but it’s the first step to understanding your financial choices.
When you are a teenager, it takes great discipline, and purpose, to set money aside each time you’re paid. Here are some talking points that may be helpful in creating an open dialogue around financial decisions with your teenager:
- Talk about tradeoffs. If you purchase this or spend for that, what’s the cost now as well as what do you have set back for later? This helps shift the perspective into the future, and many teenagers rarely think that far off. Some of us adults have a difficult time thinking forward as well. This is a good exercise, regardless of age, and allows a different perspective to be created before the money is spent.
- Matching contributions on investments that teenagers make (with parent’s help) may allow for their money to accumulate faster. Choosing to “invest” a portion of their earnings and getting a “parental match” in the process can make a big difference over time by allowing more of their money to grow and compound. Sharing what your employer currently matches when you defer to your retirement plan is a great real-life example of matching taking place today. If your teenager prefers to hold cash, consider matching what they put away into a longer-term savings account. Discussing the value of a savings match creates an incentive for teenagers to think about into the future.
- Talk about “enough”. As parents we talk all too often about enough screen time, enough sleep, eating well enough and drinking enough water to stay hydrated in the summer. “Enough” may also be discussed in the context of financial decisions. For example, how much is enough to spend today on a new phone in order to leave some cash for your next purchase or priority?
Our oldest teenager has enjoyed earning money and making various purchases. Our other teenager, a young entrepreneur, has created other opportunities in the neighborhood to earn money this summer as well. This includes walking dogs for families on vacation and creating a car wash business. Each of our teenagers is different and values the cash they earn from different jobs as important. Our role as parents is to keep the communication lines open, educating through stories and examples, over time. Avoiding talking at them but instead talk with them. You will likely generate better outcomes and relevance. This is much easier said than done! Good luck!
Advisory services through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Flowerstone Financial are not affiliated.