Kids went back to school last month but unfortunately there is still a gaping hole in the curriculum that they will be taught. Financial literacy is arguably the most important subject that needs to be taught to the next generation and yet it is still not part of the core curriculum.
Many teachers and even some school boards have taken this oversight upon themselves and at least attempted to offer some coursework in this area but it is definitely not enough. And until this changes, the responsibility for passing on these financial lessons lies with the parents and grandparents for now.
Over the next few weeks, I am going to dive a little deeper into the subject and provide some examples and advice on how you can start the conversations with your teenagers and keep the learning process rolling once you’ve begun.
Spending money is easier than ever now with online shopping and “one click” payments. With today’s teenagers more connected than in the past, the marketing and advertising of major clothing and electronic suppliers is continuously pushing them to spend more and more to establish their identity and assert their independence.
When you bring up money issues, teens may look at you like you’re from another planet but the truth is they really do want to learn more about personal finances; you just need to find the right way to bring the lessons up.
I am going to suggest that step one is to start with a budget. Everyone talks about budgets and how important they are but very few people actually do them. The first page should contain all sources of income, whether it’s tracked weekly or monthly.
Depending on their age, their income sources might include a part-time job, allowance and/or birthday and Christmas gifts. While you may be stretched thin yourself, a good sized allowance will help to formulate the base of many financial lessons and you can “recoup” some of the allowance money that you give out (more on this next time).
The second page of the budget should deal with expenses. Every penny that is spent should be tracked in the budget whether it’s spent on lunches, clothes, gifts or any number of other items. Just like adults, teens may be shocked to find out just how much they spend eating out or buying snacks over the course of a month.
At the end of each month, you should sit down with your teen and review their monthly budget and see what they have left. Hopefully there is some money left and now is the time to make a plan for the remaining balance. Are they saving up for their first car? Looking forward to a class trip out of town?
Set a goal and then work backwards to see how much needs to be saved each month to reach it. Discuss ways to trim the expense side of the budget to boost the amount leftover to put into savings.
When your teens hit college, they’ll be hounded by credit card companies and unless armed with knowledge, can quickly get into trouble with their first card. For step two, consider getting a joint credit card now with a very low limit so that you can teach them the basics of properly handling credit while they’re still at home.
In addition to a credit card, you should help them set up a bank account and a separate savings or investment account early on. Each of these three accounts will help your teen learn the basics of managing personal finances and when the statements come in, provide a great starting point for future lessons.
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 financial planner.
Keep an eye out for the part 2 of this article, where I will further explain my allowance recovery idea mentioned above and discuss the next couple of steps to teaching your teenagers the financial lessons that they so desperately need.
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.