Teaching Teens Money Skills: What Works and What Doesn't

Managing a teen’s spending habits can be a giant headache. Suddenly, your formerly-sweet and relatively-undemanding child is taller than you and hitting you up for money almost daily.

If you don’t take control of your kids’ money habits early on and establish solid rules of engagement, you might very well lose your cool. Here are three tips for parents to help manage teens’ spending habits.

Start Early, Give an Allowance and Stick to It

I’ll admit that I erred with my oldest child and didn’t start early enough with a consistent allowance. We would dole out money when she needed it, and she got used to asking for--and receiving--fun money with no strings attached. When she hit her teen years the requests became more frequent and one day the awful truth struck me: She had no real concept of the value of money.

There are different formulas to help you figure out how much to give your children at what age, but the amount is not the most important element here. Instead, giving a recurring allowance at the same time every week or month gives kids a feeling of security and something to look forward to that is inherently theirs, even when you enact spending guidelines.

We decided to do a monthly allowance starting at age 8, although it’s a good idea to start using a piggy bank system even earlier. Standing firm and letting them experience what happens if they spend irresponsibly is also key; sticking to the allotted amount quickly puts an end to requests for more funds.

Create an Allowance Budget

Once you’ve determined what to give each child, at what age, and how often, it’s vital that you make it crystal clear as to what allowance funds need to cover.

Movie outings with friends come should come from allowance funds, as should birthday gifts for buddies, snacks/eating out, magazines and most other “wants”.

There was definitely a short period of shock for my daughter as we transitioned her to a fixed amount that had to last all month, but we stuck to our new plan and worked on a simple budgeting system with her.

She quickly developed a better understanding of how rapidly money can run out, how making an unplanned purchase can derail goals, and to assess her finance before making a purchase. I’ll admit, I don’t love her $30 a month nail salon habit, but she has been able to stay within her allowance and keep this extravagance by aggressively cutting other expenses, so we’re both happy.

Make Your Teen Accountable

Because you’re essentially giving your kids free money, you have a right to know what they’re spending it on. And it’s important to be able to react quickly to irresponsible spending while it’s fresh.

To help manage their finances, we enrolled our then 15-year-old daughter and 13-year-old son into prepaid debit card for teens programs.  We set up monthly recurring loads of allowance funds on each of their prepaid debit cards. My kids and I get text alerts every time a purchase is made, showing where, when and how much, as well as the remaining balance. If I see anything out of the ordinary, I talk to them about it right away--not weeks later when memories about purchase decisions and surrounding circumstances have faded.

Knowing that I see every transaction helps keep the kids honest, and I maintain control with set spending limits so they can never overspend, and “accidentally” dip into savings or accrue debt. We now have frequent and frank discussions about finances, and it’s amazing how empowered they feel at having the responsibility of managing their personal spending money.

What DOESN’T Work

• • Bailing them out if they’re broke. Teens have to learn that the “Bank of Mom and Dad” is open once a month (or however often you dispense allowances). Unless it’s a true emergency, let them experience the reality of poor budgeting. Better to learn now then  down the road when they’re on their own and can get into real trouble.
• • Giving cash. Cash is easily lost and notoriously difficult to account for. It’s far too easy for teens to develop/maintain poor spending habits without proper accounting and accountability.
• • Waiting to discuss spending decisions. The more time that elapses between a questionable purchase and talking about it, the less whatever lesson you’re trying to impart will penetrate your teen’s brain. Address issues as they come up.
• • Not establishing guidelines. Avoid arguments about who is supposed to pay for what by clearly defining up front what you expect your teen’s allowance to cover.

Kids need to learn to appreciate and understand the value of money and there is no better way to teach this than to give them money on a regular basis and let them make decisions about how to spend it. However, not only do parents need to start the conversation about healthy spending habits early, but they must also stay engaged continuously, especially as long as they are giving them money.

Jim Collas is the CEO & a Founder of BillMyParents, which specializes in teen payments solutions focused on the parent/teen relationship.