Most teenagers are exposed to a variety of media throughout their day. From mobile phones, MP3 players, computers, video consoles, the Internet and TV, they are more tech-savvy than their parents' generation.
While this is handy when we need our kids to program our new smart phone, record a show on the DVR or to post a video on YouTube, technology doesn't teach them good money management. In fact, a recent survey showed a majority of U.S. teens admitted they lacked the knowledge to understand and effectively reconcile spending with savings and investing.
As parents and guardians, what can we do to provide the financial education our children need? It starts with teaching them the concept of money in grade school and slowly expanding these money lessons as they grow older. With so much multi-media vying for our kids' attention these days, it'll take dedication and effort to ensure these tech-savvy kids are money savvy, too.
Technology and personal finance studies
According to a 2010 study released by the Kaiser Family Foundation, children between the ages 8 to 18 devote an average of 7 hours and 38 minutes using entertainment media on a typical day. That amounts to more than 53 hours a week, an increase of an hour and 17 minutes per day over the past five years, according to the foundation's report: Generation M2: Media in the Lives of 8-to-18-Year-Olds.
With so much time devoted to being in touch with technology, it's no wonder many teens are out of touch when it comes to knowing about personal finances. Nearly half of the 1,000 U.S. teens surveyed said they were unsure about how to effectively invest their money, and nearly a quarter of them said they did not budget their money, according to the 2010 Teens and Personal Finance Survey by Junior Achievement and The Allstate Foundation.
Among teens who didn't manage their money, a majority said it was because they didn't know how to do so and thought budgeting was for adults only, or that it didn't matter.
“Teens are admitting they don't have knowledge of some of the basic money management skills around investing, budgeting and using credit,” said Jack Kosakowski, president of Junior Achievement USA, in the report. “The poll shows we need to do a better job of ensuring our youth are financially literate.”
Financial education starts at home
Parents and guardians can start by teaching kids fundamental money management skills when their kids are young so they'll understand important concepts such as savings, credit, debt and budgeting later.
One of the best teaching tools available is an allowance. Explain to your children why this money is being given to them and that part of reason for an allowance is to teach them to save for something they want. Remind them that if they spent it all at once, there's nothing left until the next time allowance is paid.
After a while, your child might start asking for a bigger allowance so they can get things they want quicker. You can use that moment to help them develop negotiation skills that they'll use throughout their lives. Ask them to explain why they deserve more money and why they should get a raise now instead of later. Have them justify spending the money and why it's important to them. You can simply ignore their comparisons of allowances received by their friends as each family's financial situation is different.
Explain the power of savings
Once your kids understand that saving is required to receive an allowance, explain to them the concepts of short-term and long-term savings goals. Sure, they can save enough in a month or so to buy something they want, but show them how much more spending power they'll have if they saved even longer.
If the idea of saving money appeals to them, have a discussion about putting their money into a youth savings account that pays dividends. Chances are they won't balk at receiving interest on their money just for saving it.
Once your child has established a regular savings pattern and enters high school, consider introducing them to how a checking account works. This is especially true if your teen starts to earn income from a part-time job. Teach them how to write checks and to use a debit card. Show them how to mark every transaction in a check register and to balance their ledger with their monthly statements. Youth checking accounts usually require a parent co-signer and have other restrictions for the benefit of teens.
Credit and debt
If your teen shows he or she is financially responsible with a checking and savings account, and is now a senior in high school and age 18, why not introduce them to a credit card? Exposing them now to how credit works prepares them so they can avoid building a large credit card debt in college. Credit card companies are notorious for offering credit cards to co-eds who don't know how to manage their spending and who end up accumulating huge debts.
We have savings accounts that are right for any kid:
- T-Bird Club (0-12 years old)
- Rising Stars Club (13-17 years old)
- Young Adult Account (18-21 years old)
Visit our Youth Accounts page for more details today.
New federal regulations on credit cards require a co-signer for any applicant between the ages of 18 to 21, unless the person can prove he or she has regular, independent income to apply individually. (Teens age 17 and younger no longer can have a credit card on their own). Financial institutions such as Travis Credit Union offer qualified young adults a secured credit card that is backed by actual savings. This allows them to build their credit history while it teaches them about credit and debt.
Be sure to show them the difference between paying the minimum payment due on their monthly credit card bill versus paying down their debt as soon as possible. You can use our free online calculators to show teens just how much more money they'll have to spend if they make only the minimum payments.
Remember, these money lessons don't stop just because your child is in college or working. Take the time to discuss with your young adult other personal finance topics, such as buying and paying for a car, how the stock market works and the benefits of saving for retirement at a young age. The financial values you still in them today will last a lifetime.
TCU offers a financial workshop just for teens. If you'd like to learn more about the products and services we offer to youths, please stop by a branch, call us at (800) 877-8328 or visit our Seminars page.
The Allstate Foundation; BALANCE Financial Fitness Program; Bankrate.com; CNN Money; Junior Achievement; Kaiser Family Foundation