“I think that it's easy for kids nowadays to get a hold of money and not appreciate it; not understand the value of it.”
– Cassandra Morehead, mother
It's a dilemma faced by many parents: your child earns money from babysitting, a part-time job or even allowance. Do you let them spend it any way they'd like? Or do you control the money?
What's the best way to teach financial literacy and responsibility?
In the Morehead home, balancing the checkbook and reviewing credit card statements is a family event. Both of the accounts belong to 17-year-old Janson.
"I definitely felt like he was old enough and mature enough and since he's a junior, I thought that it was time he started learning how to handle money," says Janson's mother, Cassandra Morehead.
If he had his way, Janson admits he would spend like crazy – but his parents set limits. With his checking account, he can buy clothes, books or go to the movies or out to eat with friends.
And when it comes to the credit card, Janson says, "It's all actually approved by my mom so when the statement comes she knows that it's all stuff she's okay with."
Experts say it's important for teens to have some control over their money.
"[Otherwise] they're gonna become frustrated," explains psychiatrist John Lochridge. "They're gonna probably want things even more and as soon as they can buy something they will. They lose that impulse control."
Experts say those impulses can lead to debt. Surveys show that over 80 percent of college students have credit cards with an average balance just over $3,000. Therefore, it's important for parents to talk to their kids early and often about money.
"I think that it's easy for kids nowadays to get a hold of money and not appreciate it; not understand the value of it and what it means to have a short-term sacrifice for long-term gain," says Morehead.
She and her husband began teaching Janson and his younger brother about finances at an early age. Janson says working with his parents to manage his money is building skills that will last a lifetime.
"It gives me assurance that when I'm out there on my own, I'll be able to keep track of everything," he says, "[and] watch out and spend wisely."
What We Need To Know
Talking with your children about finance and debt is extremely important for their fiscal futures. One study revealed that only 42 percent of eighth to twelfth graders said their parents discussed finances with them on a regular basis. Seventy-nine percent of them, however, said they are interested in how to manage their money. Experts give three main reasons why parents don't talk to their children about money.
- Parents don't know how to manage money very well themselves, so they can't get a handle on what to tell their kids. If parents are living paycheck-to-paycheck, building debt on charge cards and home equity loans and not saving for the long term, it's hard to know what to tell children.
- Parents aren't practicing what they ought to be preaching. If parents are not using self-discipline by setting a good example for their kids, how can they hold their kids to a higher standard than they hold themselves? Modeling behavior takes a serious commitment.
- Their parents didn't talk to them about money, so now they don't know how to talk to their own kids about money. Also, perhaps because today's parents didn't learn money management, they still don't know how it all fits together. They may be 45 to 50 years old and still making it up as they go along.
Remember that there are many opportunities to talk with your child about money management. When you do, remember these basic concepts:
- Making choices – Have them make a list of things they want to do with their money.
- Evaluating cost – Encourage them to decide what's affordable or reasonable.
- Weighing tradeoffs in a purchase decision – Encourage them to think critically and look at the long-term ramifications of buying one thing or another.
- Delaying purchases – Instill the value of saving money and not spending it as soon as it's received.
- Dealing with opportunity cost — Tell your child that whenever he/she buys one thing, he/she has eliminated the possibility of buying something else
- Work with your child to rank the items on the wish list. Discuss with your child what to buy first, second, third, etc. Help your child go over the list every few weeks to see if new things should be added, old ones dropped or items moved up or down on the list.
Resources
- The Mint
- Discovery Channel School
- AOK Teacher Stuff