In part 1, I wrote about the general lack of financial literacy in our youth and the almost complete absence of teaching these skills in our school systems. In the second of this three part series, I will discuss a few ideas you can use to help pass on these important lessons to the teenagers in your lives.
I previously discussed the importance of creating a budget to track income and expenses and spoke about the valuable lessons that an allowance can provide. Young people these days are acting (and spending) older than their ages so consider starting this early.
For example, you might start providing an allowance at an early age and initially, you can let the child learn by trial and error. But by the time they hit age 13 (or earlier), you should consider increasing the amount they receive but also increasing what they are required to pay for.
Don’t be afraid to give your teen a larger allowance but simultaneously require that they pay for more expenses that you would have otherwise covered for them. For example, if they have a field trip coming up in 4 weeks that will require a $40 fee, increase their allowance by $10 per week but inform them up front that they will be responsible for footing this bill.
On the day of the trip if they haven’t saved the appropriate money, they will have to miss out this time. While I understand it may be hard to see your child miss out on a special day, the lessons you will pass on for budgeting awareness will pay them back tenfold in their future.
Encourage your teen to open a separate investment account as early as possible. They can earmark the funds in this account for a bigger purchase like a new mountain bike or even a car. If possible, you might consider matching whatever funds they deposit into this longer term savings account – maybe with a clause that any matched contributions must remain in there until the big ticket item is purchased.
This will provide a strong motivator for them to save as much of their allowance and other income so that they can see the benefits of matching contributions (a lesson which will hopefully stick in their minds as adults when their employer offers an RRSP matching program).
Create a culture of charitable giving early. No matter how big or small the amount, consider dictating that a portion of each week’s allowance be set aside for some type of charity or other good cause. Encourage your teen to research the work of a charity or other group and then make a monthly or quarterly donation to that cause.
Attempting to teach financial literacy is an intimidating and often overwhelming project but if you don’t do it, who will? It is never too early to start and if you don’t feel comfortable or capable, consider enlisting some help from a family member, friend and/or your own Certified Financial Planner.
Keep an eye out for the next column where I will wrap up this three-part series of financial literacy for teenagers.
This column is written by Michelle Weisheit CFP, IG Wealth Management and presents general information only and is not a solicitation to buy or sell any investments. Please contact your own advisor for specific advice about your situation.